Lord McKenzie of Luton: My Lords, I am aware of the movement away from defined benefit schemes, but the Pensions Regulator has commenced a consultation on how DC schemes should be regulated. On13 November, the regulator published a consultation on how it proposes to address the risk to members in DC schemes and how it will regulate these schemes.The five common areas of risk outlined are poor administration, poor investment choice, unduly high charges, poor decisions on retirement choices and lack of member understanding. The consultation runs until 2 February 2007. There will doubtless be an opportunity in due course to consider the consequences of that.

Lord Skelmersdale: My Lords, we on this side of the House congratulate the Minister on his promotion to the Department for Work and Pensions, where I am sure he will prove just as effective and popular as he was as spokesman for the Treasury. Given the dismal state of pensions over the past10 years, may I add slightly to what the noble Baroness, Lady Turner, has just said? Does the Minister now see a need for defined contribution schemes to have trustees, or does he remain happy to leave them in the hands of the pensions industry, which for defined contribution schemes has always been the case?

Lord McKenzie of Luton: My Lords, I thank the noble Lord for his kind words. I thought I set out a moment ago what is happening on that: consultation is underway, kick-started by the Pensions Regulator. It will run for a little longer yet. The state of pension schemes has been discussed in the House on a number of occasions. It is right that we should recognise what has happened to defined benefit schemes over the years. All informed analysis shows that the change has been brought about by increasing longevity, falling interest rates, which has had a significant impact on gilts, and the effect of equity markets. Those issues have caused the change and the move into defined contribution schemes.

Lord Dykes: My Lords, I thank the Minister for that Answer and wish the Government well in copying the Germans' traditional enthusiasm for Europe. Sadly, the Berlin Government have always been far more forcefully opposed than Her Majesty's Government to Guantanamo Bay, condemning even its existence. Like extraordinary rendition, it is a gross breach of international law and the conventions. Will the Minister meet urgently with his Federal German counterpart, and possibly with Solana, to discuss joint initiatives in this presidency period with France, Spain, Italy and other interested member countries to persuade the United States to close down this abominable facility once and for all?

Lord Triesman: My Lords, the idea that anyone at a Dispatch Box could guarantee that this circle could be squared would be regarded as preposterous throughout the whole House. So I shall make no such attempt. As my right honourable friend the Foreign Secretary said in a debate on 18 December, the constitutional treaty is "in limbo". It is a matter for all the states, not just for us, to declare on its future. Given what has happened over the past two years, the prospects seem minimal that it will be the set of arrangements around which there is a fruitful discussion.

Lord Davies of Oldham: My Lords, it was in anticipation of the growth of gambling that we introduced the Gambling Bill. Up until then we were relying on hopelessly outdated 1968 legislation. We have produced gambling legislation which is fit for purpose to control an expanding industry. There is no doubt that an element of the increased disposable income which follows economic growth is expressed in gambling. But it is a very small minority of people in this country who condemn gambling outright and think that no one should gamble.

Lord Clement-Jones: My Lords, the Gambling Act, rightly, will regulate online gambling but I fully understand the concerns of my noble friend Lord Roberts, particularly in the light of the "Panorama" programme shown in November, which demonstrated that some 5.8 million people a month visited online gambling sites. The remarks of Professor Jim Orford that the Government are being naïve and playing dice with people's health over their plans to liberalise gambling laws also give cause for concern. We fully supported the Bill when it went through the House. What are the Government doing to establish proper research and monitoring of the situation, particularly in the use of credit cards, where open credit can be an invitation to addiction?

Baroness Whitaker: rose to call attention to the Government's White Paper, Making Governance Work for the Poor, Cm 6876; and to move for Papers.
	My Lords, when the great Swedish Prime Minister, Olof Palme, was accused of wanting to abolish the rich, he replied:
	"On the contrary, we want to abolish the poor, to abolish poverty".
	That is still the task in international development, and the White Paper Eliminating World Poverty: Making Governance Work for the Poor puts forward the UK commitments for the next five years, in fulfilment of the promises made at Gleneagles. There is a distinguished array of speakers on all sides for this debate, so I shall simply outline the scope of the White Paper and explain why I think it is so important.
	The White Paper's strapline is "Making governance work for the poor", and it is this focus on the institutional and state basis of a thriving society—on what states and societies must do for themselves—that breaks new ground. Thus, the first substantive sections describe how good governance reduces poverty and how we can co-operate in fostering it. My right honourable friend Hilary Benn is setting up a new £100 million governance and transparency fund to support the institutions of effective democracy, civil society, free media and independent judiciary, and parliamentarians and trade unions in improving the accountability of Governments. He has already enabled Governments like the Tanzanians' to improve their public finances and investment climate, such that the economy is now growing by 6 per cent a year. I saw for myself in August new enterprises there manufacturing medical drugs—not importing but manufacturing them—and, almost as important, getting them locally accredited and guaranteed with help and support from DfID-funded Crown Agents. The importance of reliable standards in medicines is something that we take for granted. Our governance achieves it.
	I applaud particularly the anti-corruption focus. Daniel Kaufmann, the head of governance and anti-corruption at the World Bank, characterises corruption as, mostly, an outcome of governance failure, reminding us of countries which have achieved macro-economic stability but where, because of poor governance, all the benefits are absent from the welfare indicators. I saw in Angola a state with such macro-economic stability, indeed with $14 billion in oil revenues last year, but with chronic malnutrition in 45 per cent—nearly half—of its children, with all that that says about lowered resistance to disease, early death, and less capacity to benefit from education and to work productively. What clearer picture could there be of a state whose governance is failing its citizens?
	There is another DfID innovation in the White Paper—support for alternative dispute resolution in obtaining land tenure, particularly for women, in this case in Tajikistan. Access to justice for day-to-day grievances is a crucial part of governance, perhaps nowhere more acutely than in the inadequate systems of land entitlement which pervade the developing world. I hope that DfID will follow this up with more support for justice systems within its country plans.
	This new focus on governance also includes the thought, termed an "evolutionary spurt" by the Overseas Development Institute—I declare an interest as a trustee—that bad governance can be caused or exacerbated by the ways in which poor countries interact with global economic or political forces, powerful richer countries and large transnational private enterprises. This wider responsibility for internal poor governance is nowhere more apparent than in security. The next section of the White Paper underlines the essential setting for stable government, and for all development: first and foremost, peace and security—the breathing space that is made by the reduction of conflict for financial security and economic growth—with telling examples of the positive results in education, health and sanitation. I am sure that the whole House supports the Government's commitment to conflict reduction and to a comprehensive arms trade treaty. It would also be much better for development if there were a ban on cluster bombs. We should not let these arms control measures slide down the agenda.
	The White Paper then goes beyond the state to tackle the baleful influence of climate change on poor people and communities. I saw a few months ago what is happening to the Masai cattle herders of western Kenya. Droughts used to come at roughly 10-year intervals and the herders used their savings for the dry years. But over the last 20 years the intervals between drought have dropped to two or three years, and they cannot save enough fodder for their cattle and maize to feed themselves. They do what they can—they cultivate upstream and cut down trees. But this destroys the catchments, so eventually they cannot even water the cattle. The cattle die. Even these resilient and hard-working people face starvation. They have to accept emergency feeding. But old people and those children too big to be carried but too small to walk far cannot get to the emergency feeding posts. Some of those die. You see few old people in Masai villages. The most striking sign of climate change was those absences, and the skeletal thinness of those who remained. Even the invigorating participation of the NGO Practical Action, which is helping these communities to diversify their economies, did not take away that powerful impression.
	That starvation and those deaths were caused by the reckless conduct of rich nations. What is more, no one nation can deal with this perverse destruction of natural ecosystems within which the Masai villagers and millions of others all over the developing world make their living. It absolutely requires international action. So, again, the White Paper is right to commit the UK to support all the international effort that we can muster.
	The last substantive section proposes a good shake to the whole of the international systems we have devised, to better engineer them towards the objectives set out earlier. I hope that the necessary reforms of the UN system, the World Bank and the IMF will move them all closer to a rights-based approach, without which the conflicts of interest cannot equitably be balanced.
	The final section, "What can you do?", is also novel. It draws the reader, the school student, the volunteer and the citizen into their—and our—relationship with other people. It began with a huge consultation process with over 600 admissions. One of the most attractive and important things about international development is this quality of drawing people in—particularly, but not only, young people. It engages them in politics and shows that politics work. The tens of thousands of people who joined the Make Poverty History march did have effects, although nobody would say that those were enough. Gleneagles did activate change—debt relief, for instance, which made healthcare free in Zambia and got 3.5 million more children and 50,000 more teachers into schools in Nigeria.
	There is no doubt that ending acute poverty is within our reach. The world is eight times richer than it was 50 years ago. But we ignore the different forms that the challenges take now at our peril. They are related and the White Paper is right to be cross-cutting. The Government have looked beyond project aid to governance aid through budget support. They have looked beyond subsistence to trade, a task stupidly sabotaged by Doha wrangling.
	But we have not mobilised universal concern sufficiently about climate change. We have not paid enough attention to the seeds of ethnic conflicts and the persecution of minorities, or paid it early enough. We have not capitalised enough on the social and economic importance of valuing women and the simple justice of reducing violence against them. We have not grasped the necessity of a rights-based approach to all these problems.
	If we can do all this better, there is a second chance for Africa, which is losing out in the resurgence of Asian markets. The great commitment of this Government to reach the UN target of 0.7 per cent of gross national income for aid, and the modern approach of the White Paper, also evinced by the Government's support for the International Development (Reporting and Transparency) Act, show that we mean business in tackling the challenges. But we shall also need to join the powerful Asian actors, who are already doing so much for African infrastructure development, in fostering justice and rights if we are all to make the most of the opportunities ahead. I beg to move for Papers.

The Lord Bishop of Chelmsford: My Lords, as chair of Christian Aid—I declare that interest in this debate—I am enormously grateful to the noble Baroness for giving us this opportunity today and to the Government for the White Paper.
	Every time I am confronted by these issues, I cannot get the words of Jesus out of my mind.
	"The poor you will always have with you".
	Those words are not some fatalistic doctrine suggesting that there is nothing we can do; they are words that encourage generosity, but they also encourage us to face reality. Poverty is persistent, deeply embedded in human experience and profoundly resistant to all our endeavours to shift it. It is an evil, inhuman experience demanding that every generation faces it, fights it and seeks to overcome it. None of the weapons that we set up to tackle it is on its own adequate to the task. The debate and the issues it raises require us to be honest. I was particularly grateful to read page 17 of the Government's White Paper where the orange and red represent what we are not going to achieve. The whole column on sub-Saharan Africa is coloured orange and red—predominantly red. That makes for very depressing reading, but I am hugely grateful for the honesty on those matters.
	Aid is important and it is vital to achieve the 0.7 per cent target. However, it will not shift the issue on its own. We talk about development and building the capacity of the people to fight the evil. That is right and important, but it is not enough if it is not accompanied by a profound change in the culture and the structures of power in the world. We think of the large issues that face us: the quality of governance and the building of corporate capacity were mentioned by the noble Viscount, Lord Eccles, in connection with the private sector. That is all very good, but poverty and the history of injustice undermine the capacity of developing societies to meet the obligations of freedom and justice. Poverty feeds corruption and corruption feeds poverty. That cycle is rooted in injustice.
	We are also faced with the wider international realities. I was particularly struck by the comments of the noble Baroness, Lady Whitaker, on Kenya. My much publicised visit last summer found similar incidents in the Samburu area. On the drought, local people in the mountain regions told me that there they no longer experience the cool mists of spring. Global warming is an increasingly big issue and raises for us big questions about our common responsibility.
	We need all those tools—aid, development, structural change and a commitment to tackle the issues within our responsibility—but, above all, we need to be persistent and consistent. I do not know how many Members of the House have made new year's resolutions and have now abandoned them, but the poor in our world do not need new sets of resolutions; they need those we have taken on to be fulfilled.
	We are told that Africa is a high priority in the Government's work. They are driving that forward by raising not only the level but the quality of aid; working with the grain of other people's cultures and the frame of their chosen priorities; building their capacity; and accepting our obligations to work for change and improvement in the international systems of trade and our global duty to the planet. Poverty is a powerful and persistent evil and it requires graft and sheer hard work by everyone working together to begin to shift it from the seat of power.
	Secondly, we must have a passion for justice and a commitment to bring hope and hold on to it in people's lives. I well remember visiting a project with street children in rural Kenya. The local church provided food and sustenance day by day for the predominantly teenage boys living on the street. Out of their own resources, local people are tackling the problems, but they need partnership and help. When asked what they wanted, the reply was clean water in showers, good schooling, people reconnected with their homes and families where possible, and the development of skills. Every step forward brings hope.
	I have said previously in this House to Her Majesty's Government and I will say again that we must work with the grain of civil society if we are to succeed in this matter. On the basis of the White Paper, I suspect that we need a fresh discussion with the Government on the partnership between civil society agencies, including the faith communities, on how we unlock the vibrancy of those communities with which we are seeking to work. If I can in any way help with that, as chair of Christian Aid, I would be delighted to do so.
	Thirdly, we need to tackle our own lifestyle. Every household needs to ask: where our is food coming from, who is profiting, what is our consumption doing to the world in which we live and are we creating a sense of interdependence?
	Poverty will not be tackled primarily by money, programmes of action or even grand schemes and commissions, however important these are; it will be tackled by the profound moral energy and spiritual vision of people here and across the world, joined together in a common task.
	If you ask why this is topic rising in importance in our community today, the answer is because of the stirring in the hearts and minds of growing numbers of people—the woman priest in Kenya running the street project, the young man who confronted me in Chelmsford High Street before Christmas requiring me to sign an Oxfam motion about poverty, and, as the noble Baroness, Lady Whitaker, said, the tens of thousands of people on the streets at the G8 summit. It is the people who will shift these matters. We here in Parliament and in government must respond to that growing public energy and concern about these matters in the world. The White Paper opens up opportunity for us, and the noble Baroness, Lady Whitaker, has given us the chance today to put our energies into the debate.

Lord Archer of Sandwell: My Lords, once again my noble friend Lady Whitaker has placed the House in her debt by initiating a timely debate on a subject which so often is crowded out by other and sometimes less important business. DfID, too, has earned our gratitude for a thoughtful White Paper which sets out not only the action plan but the context in which it requires to be taken. The right reverend Prelate understandably concentrated his contribution on the social and economic needs, and he did so very movingly. I hope he will forgive me if I confine my contribution to Chapter 4, which speaks of the need for peace and security, and Chapter 8, which calls for revision of the system of global governance.
	The world has developed a wide network of intergovernmental institutions such as the World Bank and the International Monetary Fund, which are rarely the subject of television bulletins or, I confess, of conversations in my local. But they exercise enormous power over everyday life in all countries. As Chapter 8 points out, many of them were established in the years following World War II, for a totally different world.
	The One World Trust—of which I should declare I am privileged to be president—has been conducting a project to assess the accountability and transparency of a wide range of global institutions in which, for the most part, DfID very willingly contributed. The trust has received generous encouragement from my right honourable friend the Secretary of State for International Development, who gave the keynote speech at the launch of the first report on 4 December, and even suggested that DfID itself might be subjected to a similar assessment. I do not believe that it would need to fear that experience.
	The White Paper points out that if world poverty is to be eliminated, there needs to be agreement on some structural reforms. It speaks of fragmentation and duplication among United Nations agencies, a matter referred to by my noble friend Lady Whitaker. I recently read that 12 United Nations bodies are concerned with oceans and coasts, eight with food and agriculture, seven with forests and six with fresh water. The new Secretary-General has indicated that he proposes to devote some of his time to reinstructing that organisation. I hope, and I believe, that he will receive support from the United Kingdom Government.
	It is easy to list the situations where the United Nations might be open to criticism—although the criticism, of course, is of the member states which take the decisions, often pursuing their own agenda. The list could be matched by an impressive list of achievements, of selfless and sometimes heroic service in the field. Often, statistics do not tell the whole story. The achievements may be reflected in what does not happen: the populations which do not suffer starvation; the refugees who do not die; the conflicts which do not break out. But the White Paper is right to draw attention to what needs to be done. It calls for a unified United Nations presence in any one country based on a single programme with one leader, one office and one budget.
	Perhaps most importantly, while recognising what has been done in conflict prevention, there are tragic examples where the United Nations and national Governments have been spectators when the need was for intervention. Darfur threatens to provide another tragic example. Chapter 4 of the White Paper has a subheading,
	"Insecurity and conflict keep people poor".
	If the object is to improve the quality of life for all the world's peoples, that needs to be built on peace and the rule of law—a point made by the noble Lord, Lord Wallace of Saltaire. Certainly conflict keeps people poor. It absorbs a high proportion of the resources that need to be used for eliminating poverty. The cost of relief and reconstruction following the war in Rwanda was estimated at $2 billion.
	There is a further dimension. Resources needed for food and development are diverted into the purchase of armaments. It has been calculated that countries in receipt of development aid spend about £75 billion annually on military expenditure. Indonesia is in debt to the United Kingdom to the extent of $1.408 billion, more than half of which represents defence contracts, some of them for Hawk jets which have been used to destroy Papuan villages. So emerges a vicious cycle. Poverty leads to resentment and conflict; conflict leads to further poverty. In paragraph 4.9, the White Paper points out that investment in the prevention of conflicts is far more cost-effective than a post-conflict rebuilding programme. That means, for example, investment in a system for gathering and co-ordinating early intelligence and a swift reaction capacity.
	It is good to read in paragraph 4.8 that the United Kingdom supports projects to assist developing states to take weapons such as small arms out of circulation, to reform and professionalise armed forces and to improve legal systems. Perhaps when she replies my noble friend can tell us a little more about that.
	Perhaps the most urgent peacekeeping reform would be to expedite the reaction of the international community to a humanitarian crisis. The reaction to 9/11 was very swift, but for Rwanda, which suffered the equivalent of 10 9/11s every day for 100 days, the will to action was, sadly, less in evidence.
	The expression "joined-up government" is rarely heard these days, but DfID has sought to create seamless policies across departmental divides. As we all share one aim—to create a better world—that sounds like common sense.

Lord Garden: My Lords, I, too, thank the noble Baroness, Lady Whitaker, for making this debate possible. Normally, I would want to do as the noble and learned Lord, Lord Archer of Sandwell, did and focus on Chapter 4, "Promoting peace and security". I have worked with DfID on Global Conflict Prevention Pool strategy in the past and pay tribute to the work that is done. The chapter is very good.
	However, the debate has turned out to be perhaps more timely for considering Chapter 3, the chapter on corruption. I declare an interest as an adviser to Transparency International UK on prevention of corruption in the official arms trade. Chapter 3 of the report, "Supporting good governance internationally", makes superb reading, and I congratulate DfID on the very clear undertakings that the United Kingdom makes on those pages. In paragraph 3.3 we are going to,
	"Encourage responsible behaviour by companies. Tackle corruption by closing ... loopholes that allow people to get away with illicit gains",
	and,
	"Promote better governance by helping build accountability within states".
	Paragraph 3.5 talks about the OECD's Guidelines for Multinational Enterprises and notes the difficulty that some countries, including the UK, have had responding to allegations of bad conduct. It declares:
	"we are committed to following up specific cases more effectively in the future."
	Yet, as your Lordships will be aware, on the Thursday evening before the Recess, the noble and learned Lord the Attorney-General came to this House to announce the discontinuance of the investigation by the Serious Fraud Office into BAE Systems over payments relating to the Al Yamamah programme. The words that were used by the Attorney-General seemed to undermine the excellent anti-corruption proposals that are in this DfID report. He said that,
	"it has been necessary to balance the need to maintain the rule of law against the wider public interest".—[Official Report, 14/12/06; col. 1715.]
	That is the argument that will doubtless be welcomed by corrupt leaders around the world. In the light of this decision, it is difficult to read the declarationsof page 39 of the report without a great degree of cynicism. I was particularly struck by the assertion that the UK will:
	"Make UK business aware of the risks of bribery overseas".
	The reports that appeared, predominantly in the Financial Times, about concerns in the City of London over the effects of the Attorney-General's statement seem to indicate that business is rather more aware of the risks than perhaps Her Majesty's Government are. The Financial Times of 23 December reported that the chief executive of Hermes, which manages the BT pension fund, had written to the Prime Minister warning that the decision threatened the UK's reputation as a leading financial centre. There were criticisms from other fund managers such as F&C Asset Management, and even from Morley Fund Management, which is actually a significant BAE Systems shareholder. It appears that business needs no warnings from the Government; the boot is on the other foot.
	I ask the Minister to explain when she winds-up the debate whether DfID now has a strategy to restore the credibility of the UK in this key area. The wrong message is already being taken up abroad. In Ghana, the Accra Mail of 18 December—in an article entitled "BAE Systems: Whose corruption?"—was quick to point out the double standards. The correspondent concluded by saying to Mr Blair:
	"Thank you for showing us the way to good governance".
	Yet this DfID report, as I said, is admirable. Corruption is insidious and undermines good governance, and can destabilise countries. It cannot be in our national interest, or that of any democracy, to rebalance the rule of law. It is not in the long-term commercial interest of the City or of the aerospace and defence industry. If allegations are made and not investigated, the reputation of any company, be it BAE Systems or other UK aerospace companies, is diminished. In a world that is moving towards higher standards, which is what we are after, business will not come to companies with tarnished reputations. I note that investment companies are now concerned about the ethical dimension of their portfolio and take note when they are investing of the reputation of companies in this respect.
	In respect of our debate today, the real question is how we can take forward the report's very positive proposals in a world that will now be so much more sceptical about our good faith. The report says that the UK will set up a dedicated overseas corruption unit by the end of 2006, staffed by City of London and Metropolitan police with support from DfID and others, to investigate allegations of bribery and money laundering. This was first announced in the middle of last year, in June 2006. I hope the Minister can tell us how that is progressing. With such a unit, who will decide whether investigations should continue if someone else in government judges that the national interest is affected?
	Another recommendation expresses an expectation that UK businesses will report attempted bribery overseas to UK embassies so that they can be investigated by partner governments. Does that include Saudi Arabia, or is it exempt? Is there a list of countries where such procedures do not apply? How many such reports have been made over the past five years? The report seeks to help others meet OECD bribery convention standards at a time when the UK itself is being questioned by the OECD. Paragraph 3.12 says that the UK is committed to tackling corruption, bribery and money laundering. That includes making sure that we rigorously enforce relevant UK laws so that people who pay bribes are prosecuted. I am afraid that the world will now find that difficult to believe. I hope that we will hear how this damage to our international reputation is to be repaired.

Lord Chidgey: My Lords, I add my name to the growing list of noble Lords congratulating the noble Baroness, Lady Whitaker, on bringing this debate to us. The quality of this debate has so far been very good, and I hope it will continue to be so.
	The goal of Eliminating Poverty: Making Governance Work for the Poor is one that many institutions clearly support, many Governments aspire to and many noble Lords have a commitment to. The challenge is to move from aspiration to achievement, from a wish list to a checklist of actual progress. This report provides an overview of many of the issues and challenges facing the international development community, but there is a strong tendency to overestimate achievement. This may meet a political agenda but frankly does nothing to strengthen the scale of the problems that still have to be addressed and tackled. Realism about actual progress in the international development community should not be mistaken for pessimism. Only by being realistic can we truly make inroads into eliminating world poverty.
	I will pick up just a few of the points raised in the report, although time dictates that not much can be said. The section "Winning the Fight Against Corruption" in Chapter 2 has so far proven to be a popular element of the report. The description of harm that corruption does to poor people, particularly women, is stark and accurate. The case for and route to achieving reform is clear, but it will be a long-term programme. Many speakers so far have underlined the fact that the programme has clearly been undermined by recent developments in the United Kingdom.
	The report, for example, is hopeful that Nigeria is,
	"turning the corner on corruption".
	This is not a view generally shared by the people in Nigeria with whom I have contact. Just before Christmas the World Bank released its delayed report on its monitoring of the repatriated Abacha funds were used. This was the great hope; we had repatriation of stolen resources from Switzerland back to the people of Nigeria. Corrupt leaders squirreled away these funds in Swiss banks on an unprecedented scale. The World Bank confirms criticism of what amounts to a total lack of audit trail for the $500 million returned, and points out that some of the adopted procedures are counterproductive to the return of stolen assets to the people.
	A Nigerian court said only yesterday that the dispute between President Obasanjo and Vice-President Abubakar raises grave constitutional issues. This court has called for the Supreme Court to decide whether Mr Abubakar should be sacked. Were he to lose his job he would also lose his immunity from prosecution and would be liable to investigation over allegations about the misuse of public funds. Yet only last month, Mr Abubakar announced his plans to run for the presidency in April's election. I suspect progress is not as fast in Nigeria as the White Paper would have hoped.
	In Ekiti State, the governor has been impeached after MPs found him and his deputy guilty of corruption. Nigeria's anti-corruption watchdog, the Economic and Financial Crimes Commission, accuses the governor of diverting state funds into his personal accounts. Corruption is clearly still rampant in Nigeria. That the EFCC states that almost all of Nigeria's 36 state governors are corrupt emphasises just how far Nigeria still has to travel before it even gets to the corner, never mind turning it.
	In Transparency International's assessment of sub-Saharan Africa—very much in keeping with the charts so eloquently described to us earlier—it points out that the combination of abundant natural resources, a history of autocratic and unaccountable governments and a record of conflict and crisis has posed particular challenges to governance and the fight against corruption. Meanwhile the development challenges are huge. Sub-Saharan Africa is the only region in the world where poverty has increased in the past 25 years. Half the continent's population of840 million are still living on less than a dollar a day, and 32 of the world's 38 highly indebted poor countries are in Africa.
	Progress is being made in democracy and human rights in some countries but corruption remains one of the biggest challenges throughout Africa. The seeds of systematic reform are being sown in some African countries, and others will follow in due course. To make governance work for the poor, the challenge for DfID and for us is to direct resources and co-ordinate like-minded institutions into nurturing the seeds of reform until they grow, vigorous and healthy, into unassailable established codes of practice and behaviour acceptable everywhere—most importantly, acceptable to the poor of Africa. We should not deceive ourselves of the magnitude of the challenge, nor the determination needed to meet it.

Lord Lea of Crondall: My Lords, I welcome my noble friend's initiative. I acknowledge her point about the widespread consultation but I am not quite so enthusiastic about the White Paper. I do not give it very high marks for intellectual coherence and I share many of the views of the noble Viscount, Lord Eccles, about the lack of economic literacy or numeracy in the report as a whole.
	Meeting the millennium development goals is a question, statistically, of gross national product increases per head in real terms. The White Paper quite widely makes the most elementary undergraduate mistake of confusing overall growth rates of gross domestic product with growth rates per head and so, quite often, one does not know whether the authors intend one or the other. For example, on page 19 it refers to Tanzania growing at 6 per cent per year. The world development indicators of the World Bank since 2000 show that the figure is 1.2 per cent per capita. I would give this series of undergraduate essays strung together as a White Paper a mark of "beta two" individually and "beta minus two" overall. I am putting this slightly provocatively because I think it is necessary to get an economic grip on what the thread of the argument is supposed to be. The White Paper reiterates our commitment to the millennium development goals when, as has been said, there is no chance of meeting them in Africa.
	The World Bank research study refers to the dollar-a-day benchmark—which, of course, purely in exchange rate terms, is logically $365 a year—whereas we are using now $700 dollars a year at purchasing power parity. The report states that for Africa and Latin America under the current assumptions, both absolute poverty and poverty incidence cannot be halved within less than 30 years. So, if Bob Geldof thinks differently, he is misleading people quite grossly. With some income redistribution,. the scenario improves markedly in some parts of the world, but for Africa under the current assumptions, poverty incidence will still take more than 30 years to be halved.
	This connects very much to the question of population growth, although it is very hard to see this analysis in the White Paper. A recent analysis by the European Defence Agency was circulated to a meeting of the sub-committee on Foreign Affairs, Defence and Development Policy of the European Union Committee and was debated recently. It states:
	"High fertility should see Africa's population"—
	which is pencilled-in in red and orange traffic lights, as the right reverend Prelate the Bishop of Chelmsford has pointed out; there is, of course, a quite different trend in India and China—
	"growing faster than anywhere else—up by 48% to 1.3 billion by 2025—despite AIDS. The average African's age is projected to be 22. Desertification may increasingly concentrate this young population in urban centres (11 African mega-cities of 5 million plus by 2025)—many of them without hope of employment. The implications for despair, humanitarian disaster and migratory pressures are obvious".
	I echo the EDA's analysis that demographic development is very important. Population growth will far exceed what is compatible with increased living standards and meeting the millennium goals. Reducing the offspring rate per woman from five, six or seven to nearer the replacement rate will not happen through some magical virtuous circle of the diminution of the rate of population growth and the rate of growth of the GDP, as I think current DfID doctrine implies it somehow can. Of course if you can first catch your hare and manage an increase in the growth of GDP, that may be true, but that is not where we are, as all the UNDP and World Bank projections are showing. We need to be more courageous in putting that problem on the agenda.
	I ask the right reverend Prelate the Bishop of Chelmsford—perhaps it is a bit undignified to put a question in this form, but I am inclined to put it in some form or other—where is the policy of Christian Aid on population growth? We have now heard that all the Churches have a strong policy on ecology, but surely there must be some more honest analysis coming from Christian Aid and the Churches about population growth. I suspect we all understand some of the reasons why that analysis is not there, but I want to put that challenge in public. The issue should be addressed. It has become something of a taboo, but the appalling conditions, low expectations of life and infant mortality require that challenge to be met.
	I have a question for the Minister. I have given notice to her office that I would like her to write to me on this question, as she cannot be expected to swap statistics here and now. The GDP growth rate per head in real terms in Africa means that halving the number of people on less than a dollar a day by 2015 is unattainable, but what figure is implied by that? We cannot see how far we are falling behind unless we know what the figure is. I hope my noble friend will write to me and say what it is, and how DfID is proposing to monitor on a wall chart what the numbers actually are, so that there will be no misunderstanding between us about the statistics.

Lord Crisp: My Lords, I, too, thank the noble Baroness for initiating this debate on this important subject. I declare two interests. I have been asked by the Prime Minister and the Secretaries of State for International Development and Health to report to them on what more we could be doing to use UK experience and expertise in health to support health improvement in developing countries. I shall be reporting to them in a few weeks' time. I am also part of the team carrying out the DfID capability review. I do not intend to pre-empt either of those processes in my remarks today. There are, however, many areas covered by this important and wide-ranging White Paper, and I want to speak about three of them: two where I have some experience and know their importance, and one about which I know relatively little, but which I believe could be even more important.
	The White Paper rightly addresses the importance of governance within each country. It also discusses the importance of good global governance, as it calls it. I have seen the importance of that all over the developing world. There are too many donors, sometimes with different priorities, and organisations doing different and sometimes conflicting things, making very burdensome demands on countries. There are too many isolated projects, when joining up with others would have greater impact. I suspect we have all heard of those examples of countries being visited 100 times or more in a year by different donors or inspection teams, all asking different questions. I was also told the story of a former Mozambique minister of health who, on taking up office, said that he thought he was the Minister responsible for health in the country, but instead he found he was the Minister for health projects run by foreigners.
	This uncoordinated system means that aid is not being used effectively. It also means that developing countries are faced with unreasonable demands. They have to use precious resources to manage and co-ordinate donors. I have met, and indeed been berated by, Ministers in many African countries, who find their efforts hampered by the complexity of international aid. They have to collect different sets of information for different donors to monitor progress when they should be collecting the information they need to run their own affairs. Monitoring is important, but there needs to be a single discussion, a single process and a single conversation between the donors and the developing countries.
	Some donors are beginning to address that, and I applaud the UK Government for their leadership in that respect. More importantly, I have heard Ministers in developing countries do so. They have adopted a country-led approach, give budget support rather than support for individual projects and are working to reform the global architecture. However, the reality on the ground is that the situation is not changing fast enough. What practical steps are the Government taking to accelerate progress here internationally?
	My second point is about how the Government are leveraging support in the UK for their policy. That has two elements. There is a statement by the Prime Minister in the preface to the White Paper that this is about a whole government effort. Then there is the description in the last chapter of how we can all contribute as individuals. While I have just argued that development needs to be done professionally, it need not be exclusively an area for development professionals. Noble Lords will know of many examples, some led by Members of your Lordships' House, of voluntary work carried out by organisations and individuals who are making a real difference in developing countries. There are many examples of government departments other than DfID, not least health and education, where important international work is undertaken.
	That work needs to be carried out in some overall framework so we do not see duplication and misguided effort, but at the same time we need to ensure that such co-ordination does not crush initiative and creativity. These voluntary efforts are important, and can build person-to-person contact across the world. They, too, contribute to international development and to "soft" diplomacy. How in practical terms, then, are the Government leveraging and supporting such individual efforts and making sure this is truly a Government-wide and UK-wide approach?
	Finally, I turn to finance and the economy. This is an enormous and vital topic. As the White Paper says, growth is the best way to reduce poverty. The lack of capital and investment is one of the greatest problems developing countries face. There is enormous entrepreneurial activity, and scope for much more, in developing countries. Take the example of phones, mentioned by the noble Viscount, Lord Eccles. Celtel was supported by CDC, very wisely, but the spread of phones was led by farmers and fishermen, not just by big business. They saw the opportunity. I also agree with the noble Viscount that China will have a profound impact. I understand that the UK is the biggest donor in Africa, but China invests more in Africa than the total aid given by all countries. It will be profoundly affecting the future of the continent. There is much to be said here on economic issues, and I have a great deal of sympathy with the recent comments of the noble Lord, Lord Lea, about the need to see more developed in that area.
	I shall touch on the economic subject of micro-credit, an area where I have much less experience than in the others I have mentioned. There is now evidence that giving women small loans for economic purposes, perhaps to buy a sewing machine or some farming tools, leads to improvements in their families' health, rather than doing anything directly on health. There is also ample evidence, far beyond health, of the central role that supporting women—with education, organisation or loans—has on development in all its aspects. What are the Government doing in practical terms to support this entrepreneurialism, and how much priority will be given to it?
	In these few minutes I have spoken of the central importance of improving the top-down aid system and of widening the scope of development to include us all, not just the development professionals, but also of the vital need to support bottom-up development, engaging the entrepreneurialism of the people in developing countries. The White Paper touches on all of them, but it does so necessarily in a broad-brush way. My concern is with the detail and the pace of change. I look forward to the Minister's response.

Lord Parekh: My Lords, I too thank the noble Baroness, Lady Whitaker, for initiating this debate so eloquently. I also congratulate the Government, especially DfID, on producing what I take to be an extremely imaginative and interesting White Paper. If I may part company with what my noble friend Lord Lea of Crondall was saying, it is far more than a collection of undergraduate, or even postgraduate, essays. Having been a university professor for nearly 40 years, I reassure the House that it is far better even than an outstanding PhD dissertation that deserves to be published by the best university press.
	I have just two minor comments by way of criticism of the report, and I will then get on to the big issues. It would be helpful if pictures in such reports could be identified in future with their country of origin. It would also be helpful if the pictures did not include simply people in destitution or Africans going round being cheerful, but also people in positions of power, doctors at hospitals, and universities. Africa is not just one sad story of failure and underachievement.
	I want to highlight four or five important issues. Some of them were covered in the report while others were, sadly, ignored. The first and most important to remember is that countries cannot develop unless they are stable; they cannot be stable unless their Governments are legitimate and enjoy the support of the people; they cannot enjoy that support if large sections of the people are excluded or marginalised. This has been the constant problem in all the poor, conflict-stricken countries. Large sections of people are excluded or marginalised in the name of creating a homogeneous nation-state that should be unitary and not pluralist. Take almost every country that your Lordships are discussing here, and the problem is always one particular ethnic community wanting to control the state and impose a unitary framework upon it.
	We should be encouraging those countries to create plural and multi-ethnic political structures, shedding power with federalism at not only the political but the economic and cultural levels. Here, I am afraid that our foreign policy gets in the way. It is sad that the report has no reference at all to how foreign policy can complicate situations. Unfortunately, for the last three or four years the American Government in particular—with some support, sadly, from our own—have been heavily preoccupied with Islamic terrorism. That has generated suspicion of any attempt in developing countries to accommodate religious groups. In fact, there is constant pressure not to accommodate such groups but to keep them out as much as possible, with the result that many developing countries seem to think that they will enjoy high marks in the western press and from western Governments the more religious people that they kill, hunt or arrest. Every day we hear stories of Governments doing precisely that, and expecting the American Government to cheer them and pat them on the back.
	As a result, we have large numbers of religious groups mistakenly taken to be terrorists or fundamentalists who sulk and feel alienated, feeling that there is no place for them in the country. Equally importantly, mullahs and religious hierarchies have their own economic interests, which good political sense would seem to require that we should be able to accommodate. One of my most important points is therefore that the war on terrorism, by equating all Islamic religious groups with terrorists and putting pressure on developing countries not to accommodate them in any way, is a disastrous attempt to secure economic development in any form.
	By and large, our concern should be to leave these countries alone to resolve their conflicts and to enable political settlements through their societies' normal processes of negotiation. Of course, they are sometimes stretched beyond the limits of their resources, in which case our concern should be to hold the rein, and encourage negotiations but not try to impose this or that individual or group. Such Governments do not last; the alienated groups then turn to warlords, and things become disastrous.
	My second point—it has already been made by the noble Lords, Lord Hannay of Chiswick and Lord Garden—is about having a tighter regime of control on the activities not only of our public enterprises but of multinationals. It is known that several multinationals have been funding militias. They play one local group off against another. Sometimes they are even known to encourage military coups, or to support those coups that have been successful. Their activities need to be strictly monitored, and any allegations of interference in the affairs of the country—as well as attempts to give bribes—must be investigated.
	Thirdly, just as we acted firmly and quickly to monitor the bank accounts and financial dealings of groups suspected of supporting terrorists, we must do the same with government leaders of developing countries. They should not be allowed to siphon off large sums of money abroad. There must be tight control on how the bank transactions take place, and those suspected of such things should not be allowed to find shelter in our country, or in any other western society. Nor should their families be educated in any of our schools and universities with money obtained in that way.
	Lastly, I turn to the question of aid. It is absolutely vital to building up the economic capacities of developing countries, but it is true that it can be appropriated by the rich and powerful and may not reach its intended audience. I therefore suggest that we might bear three or four things in mind. First of all, aid should be clearly targeted at specific programmes—mainly education, health and the training of managers. Secondly, as far as possible we should be working with local NGOs that have some experience of working on the ground. Thirdly, as has already been said, we ought to be able to set up and work through local networks of Grameen-like banks—the kind for which Professor Yunus was recently awarded the Nobel prize—in a suitably Africanised form. In Bangladesh it has run into difficulties, which I would not want to go into. It cannot be tried out in the same way in India or in many of the Middle Eastern countries, so the idea of a local bank lending money to women and encouraging them to set up their own small enterprises has to be suitably indigenised.
	As far as possible, rather than aid being privatised—as the noble Viscount, Lord Eccles, suggested—we ought to be thinking in terms of fostering civil society and encouraging it to take on the burden. For example, schools in our country can link up with schools in African countries. Hospitals, universities and institutes of management could be doing the same thing so that, over time, we begin to build up technical resources in developing countries. Once money goes into developing technical resources, we need not worry too much about current Governments, because when people are suitably trained current Governments are able to do little about this. We ought to be relying more heavily within our own country on institutions, universities, schools and others. We should give money to them and encourage them to link up with their counterparts to build them up.

Lord Brett: My Lords, I echo the many tributes to the noble Baroness, Lady Whitaker, for introducing the debate so well, and for setting the scene so comprehensively. When you are batting as far down the order as I am, you are expected neither to bat as long nor to score as many as the opening batsmen. Listening to the noble Viscount, Lord Eccles, and the noble Lord, Lord Wallace—the opening batsmen in this debate—I found myself much more appreciative of and in sympathy with the latter's contribution, but the noble Viscount did score a number of boundaries on the on-side, particularly in two areas.
	First, there is the missing elephant, an African elephant that is also a Chinese one: the role of China in Africa. Go to most African countries and you will see a mausoleum, a parliament building or a sports stadium—or in Addis Ababa, a whole ring road—produced by Chinese labour as a gift from the People's Republic of China. You will also see the Chinese active in other areas, and we must see the significance of that both in terms of what it might do for the advantage of Africa and because China is in many cases getting a more sympathetic hearing in Africa than our own Government. Yet I believe that the position taken by Her Majesty's Government in this White Paper and through DfID's activities is right and that we should support it. I am not commenting on the attitudes of the Government of China.
	Another area where the noble Viscount, Lord Eccles, hit a boundary was the role of the private sector. At least, that is the observation from both expatriate and indigenous members of the private sector in Africa, who do not feel that DfID particularly understands how they can help and be part of the process. I do not know whether that is a justified criticism, but I add it as a comment to the debate.
	I also find myself in favour with the contribution of the noble Lord, Lord Judd. I sympathise entirely with civil servants in their task. We have a high quality Civil Service in this country—albeit that the Home Office and some departments have been criticised—but I particularly commend and am grateful for the civil servants in DfID. They have the quality of the Civil Service in general and bring a commitment to the task. I speak and declare an interest as the United Kingdom representative of the International Labour Organisation, a specialist UN agency. I have been involved in the negotiations of a partnership agreement. The noble Lord, Lord Crisp, made the valid point that projects are not really a way to carry out development work. The partnership approach much pioneered by successive UK Secretaries of State is much more effective both for agencies doing the work and countries receiving the assistance.
	We recently negotiated a £20 million partnership agreement with the UK Government, to be implemented over a coming period. The UK civil servants who negotiated that were rigorous and demanding and did an excellent job on behalf of Her Majesty's Government. I do not know whether all my colleagues in the headquarters division of the ILO, who negotiated with them, would share that appreciation, given that they were put through some very tough tests and questions. Of course, the scrutiny continues. There is conditionality on money being paid, and the objectives that have been set have to be reached. I have no criticism with any of that. It seems to me the right way to do development business on behalf of the people in the developing world and the British taxpayer.
	I have slight concern about how those things that we rightly try to do are perceived in the countries in which we try to do them. I come back to the perception from an African viewpoint. I was at a meeting where President Mugabe got a standing ovation for a considerable attack on the position not only of the United Kingdom but of what we might call the northern hemisphere in general. The ovation was given by an audience who were not wholly sympathetic to the points that he made. He is a speaker of some force, which no doubt played a part, but sometimes there is a sense that we are telling people in the developing world what to do while we ourselves are not doing it. I shall not comment on corruption but a number of noble Lords made very apposite points on that.
	Another area where I think that we are sending mixed signals is the Government's policy, as I understand it, to vote against any increase in the budget of an individual UN agency that goes beyond zero real growth. That, of course, is not understood by many developing countries and the majority of governing bodies of agencies, which see an increased requirement for techno-cooperation and the fact that in a small minority of countries, but mainly developed countries, there is a taking back from the multilateral system of funding in favour of the DfID approach. There is nothing wrong with the DfID approach but if you do it at what appears to be the expense of the UN system, you seem to apply the conditionality of reform by starvation. The UK could gain more in its persuasive attempts to reform the UN—I immediately accept that there is much room for reform there—if it did not have such a rigid attitude in its budgetary approach to agencies. Clearly, agencies differ; their priorities differ. I support the UN reform of more coherence that the UK Government want to see. I was a member of the Royal Commission on the social dimensions of globalisation, which reported in 2004. We highlighted the need for coherence and cohesion between United Nations agencies, the bank, the fund and, indeed, the WTO. The present danger concerns structural reform within agencies. Do we get rid of or merge agencies? That may well get in the way of achieving better policy requirements. I particularly support the view that the UNDP could have a co-ordinating or leadership role. However, conflict could arise where it provides services that it is at the same time commissioning other agencies to provide.
	On the basis that I have not spoken for my full allotted time, but have been at the crease longer than the average English tail-ender in cricket matches over the past few months, I leave your Lordships to ponder my remarks.

Baroness Northover: My Lords, I, too, thank the noble Baroness, Lady Whitaker, for securing this debate and for all her work in this area. It is a very welcome paper, building on the work which led up to Gleneagles and the 2005 Make Poverty History campaigns. At Gleneagles, significant pledges were made, not least to get all who needed it on to ARV treatment by 2010. In return the G8 countries demanded pledges from African countries on tackling poverty, corruption, bad governance and conflict.
	As others have said, this is a wide-ranging and very thoughtful paper, though the noble Lord, Lord Hannay, gives it an A, while the noble Lord, Lord Lea, gives it a low B and the noble Lord, Lord Parekh, thinks that it can be published as a thesis. It covers the foundations of development through good governance, peace and security, financial security, addressing climate change, trade, education, the treatment of HIV and improvement of health systems, reform of international organisations and so on. The wonderful photos bring home what we are talking about—the lives of children, women and men. As the right reverend Prelate the Bishop of Chelmsford rightly pointed out, the huge amount which needs to be achieved is very starkly shown in the MDGs chart.
	The White Paper is in many ways very general; it does not spell out anywhere in great detail how this vision is to be delivered. In this excellent debate many noble Lords asked for further work and details in various areas, including the noble Lord, Lord Crisp, on micro-finance, the noble Viscount, Lord Eccles, on the private sector and the noble Lord, Lord Brett, and others on China and Africa, which the International Development Select Committee is looking at this afternoon. It was decided, however, that governance should be the overriding theme of the paper, as in DfID's view that underpinned all development. Considerable space is given to that. DfID's heart must have sunk, given all that it had invested in the improved governance agenda, when, as other noble Lords have said, the noble and learned Lord the Attorney-General announced in this House the need to,
	"balance the need to maintain the rule of law against the wider public interest".—[Official Report, 14/12/06; col. 1712.]
	in relation to the SFO, BAE and Saudi Arabia.
	My noble friends Lord Garden and Lord Wallace of Saltaire and the noble Lords, Lord Hannay and Lord Judd, the noble Earl, Lord Sandwich, and others pointed out with great cogency just how the noble and learned Lord the Attorney-General's Statement on BAE undermines much of what the paper stands for. Whatever the Attorney-General has said about this case setting no precedent and showing no green light to anyone must be viewed with considerable scepticism.
	The foreword to the paper by the Prime Minister states:
	"This will need an effort right across Government, to put our pledges into practice",
	in which he included the promotion of better governance across the world. Yet when the Prime Minister's views were apparently sought in regard to BAE, what happened to this laudable aim?
	Hilary Benn says in his introduction to the document that,
	"we will be resolute in the fight against corruption".
	When he opened the debate on the paper in the Commons on 26 October he stated that,
	"one thing is clear beyond doubt—without good governance we will not be able to defeat poverty, or climate change, or war, or famine. That is why we put good governance at the heart of this White Paper".
	He added:
	"Good governance is about ensuring the rule of law".
	Was the Secretary of State for International Development consulted about the decision regarding BAE, and if not, why not? After all, the Prime Minister, the Foreign Secretary and the Secretary of State for Defence were. The noble Baroness may say that the case held no relevance to DfID, but DfID's White Paper makes it extremely clear that it does. As the Secretary of State further stated in the Commons:
	"Governance is ... an international issue. Bad governance can be caused or made worse by the actions of rich countries and their companies. For every bribe taken, there has to be a bribe giver; for every stolen dollar that is spirited out of a developing country, there has to be a bank account somewhere for it to go into. That means that we have to be more effective in stopping bribery and, where money is stolen, in finding it and giving it back".—[Official Report, Commons, 26/10/06; cols. 1737-39.]
	The document itself states that the UK will adopt a new "quality of governance" assessment to guide the way in which the UK gives aid, that they will launch a new £100 million Governance and Transparency Fund, and that they will work internationally to tackle bribery, corruption and money laundering. We have heard from the noble Lords, Lord Chidgey and Lord Parekh, how much the UK needs to do in this area.
	We read on page 28:
	"Corruption hurts poor people, and it harms women in particular. When health staff demand bribes for medicines, teachers for enrolling children in school, or local government officials for providing water connections, it keeps people poor".
	The paper states that corruption damages economic growth by increasing the cost of doing business, it siphons off resources that should go into public services, and it undermines the accountability of political leaders and officials to their citizens. We agree. The paper goes on to say:
	"We are committed to following up specific cases more effectively in future".
	That is what DfID thought in July 2006. Who will now do that?
	The paper mentions the Africa All-Party Parliamentary Group's report on corruption, The Other Side of the Coin, which many noble Lords were involved in and which recommends working to reduce the risk of UK businesses being involved in bribery in developing countries. The paper says that the Government will implement almost all of the report's recommendations. Will the noble Baroness tell us what the Government intend to miss out? Might it be following through on SFO investigations into bribery by British companies when threatened by another state? When this paper came out in July, Christian Aid noted that it over-focused on corruption only within developing countries. As the organisation put it, it takes two to tango. Indeed.
	I feel for DfID, the noble Baroness, Lady Whitaker, and the noble Baroness the Leader of the House, given their track records. This is an excellent paper but it is only words. Those words have been overshadowed, perhaps eclipsed, by the actions of the Attorney-General, the Prime Minister, the Secretary of State for Defence and the Foreign Secretary. Those actions show us more clearly than does this paper where the Government stand on the rule of law, good governance and fighting corruption.
	DfID worked on this paper for the best part of a year. The Secretary of State made a number of key speeches early last year as part of taking the paper forward. NGOs and many others were consulted widely. The paper could have been a predictable manifesto of what DfID wanted to do, but instead it was decided to have this strong theme of good governance as underpinning all development. That was bold and welcome. I wish the department the very best in seeking to implement it, first and foremost within its own Government.

Baroness Amos: My Lords, as usual in our international development debates, we have had a debate of high quality. I thank my noble friend Lady Whitaker for opening the debate and giving such a comprehensive introduction to it. I am also grateful to noble Lords for their contributions and their general welcome for the White Paper, although of course I listened very carefully to the criticisms. I entirely take the point made by my noble friend Lord Parekh about the importance of showing positive images of what is going on in developing countries and not just negative ones.
	Making Governance Work for the Poor is the Government's third White Paper on international development. It builds on the commitments in the 1997 and 2000 White Papers, and it sets out how we will deliver the promises that we made at Gleneagles. It explores some of the big challenges facing us at the start of the 21st century, such as climate change, corruption and conflict. We are all aware of the significant development challenges facing our world: poverty, child and maternal mortality, the impact of HIV and AIDS, and lack of access to water and sanitation. There are also, of course, challenges in how we live together in the modern world—issues of religion, faith, culture, community and security; issues at the heart of the remarks made by my noble friend Lord Parekh.
	I say to the noble Baroness, Lady Rawlings—who not so long ago was extremely critical, in the Queen's Speech debate, of the impact and effectiveness of aid—that I welcome her change of heart today and support for the DfID agenda. I understand why the Conservative Party now considers that it is not a party political issue. It does not want to be reminded of its track record, when we saw a decline in the aid budget over 18 years. I remind the noble Baroness that it is this Government who have had a target for eliminating child poverty in Britain. I cannot remember any Conservative Government ever setting such a target.
	In the six months since the White Paper was published, we have already made very good progress. We have issued the first bonds for the international finance facility for immunisation, which has the potential to save 5 million lives by 2015. We have set up the new Overseas Anti-Corruption Unit, with more police to investigate bribery and money laundering. I will come back to that later. We are finalising our new country governance analysis, which will help to promote good governance.
	Good governance is at the heart of DfID's work to reduce poverty. It is about effective states—states that create the conditions in which economies can flourish, that listen to their people, that have the capacity to deliver what they promise and that are held to account. The noble Baroness, Lady Rawlings, asked about our new governance analysis in the countries in which we will work. We will ask our partners three simple questions. First, are you committed to reducing poverty? Secondly, do you uphold human rights and international obligations? Thirdly, are you committed to fighting corruption and promoting good governance? Depending on the answers that we get, we will take decisions about how we will work with that country and what kind of aid we will give.
	A number of noble Lords raised the issue of corruption, including the noble Lord, Lord Chidgey, who focused on Nigeria, and the noble Lords, Lord Garden and Lord Hannay of Chiswick. The noble Earl, Lord Sandwich, my noble friend Lord Parekh and the noble Baroness, Lady Northover, also raised the issue, expressing their concerns in the context of the SFO's decision on BAE Systems. I say to the noble Earl that we recognise that there are two sides to every contract. There seems to have been a kind of collective amnesia here today about the areas that we have put in place to tackle corruption. I remind noble Lords that we set up the Extractive Industries Transparency Initiative following the publication of the White Paper. Noble Lords were very particular about asking what is happening in the UK itself. We are making progress on combating corruption through better information. The implementation of the third EU money laundering directive will require financial institutions and other regulated businesses to notify the authorities if they suspect that money laundering is taking place.
	We are looking at better co-ordination. The Department for International Development will provide funding of £6 million over three years to the International Corruption Group, which brings together the experience of the Serious Fraud Office and the Serious Organised Crime Agency with new capacity in the Metropolitan Police and the City of London Police. The City of London Police will have the capacity to investigate cases of foreign bribery by UK businesses and nationals operating in developing countries. The Metropolitan Police will have the capacity to recover the proceeds of money laundering by politically exposed persons through the UK's financial systems. Assets recovered will be returned to their country of origin.
	We are extremely serious about tackling corruption, because there is now good evidence that corruption holds back development in the countries we work with across Africa and Asia, taking away money that should be spent on education and health, and hitting the poorest hard. We are aiming to build on the results that the Metropolitan Police have shown can be achieved. We put a stop on £1.8 million that an ex-state governor of Nigeria had tried to hide away in the UK. Last month, the High Court ordered the return of about £800,000 to Nigeria, and action is continuing to recover the rest.
	On BAE, as much as noble Lords who have spoken on this issue may dislike it, I reiterate that the decision to discontinue the BAE investigation was taken independently of government by the director of the Serious Fraud Office. He very properly took into account the risks to national security of carrying on with the case and concluded that it was not in the public interest to go ahead. I assure noble Lords that the decision related to the particular circumstances of that case. It does not set any sort of precedent. Other SFO investigations into international corruption are continuing, and the Government's wish to tackle international corruption is clearly reflected in the new law introduced by the Anti-Terrorism, Crime and Security Act 2001 and the OECD convention to which we signed up in 1997, as well as in the steps that we have taken to increase the administrative and enforcement capacity to deal with international corruption.
	Peace and security is vital for development, and my noble and learned friend Lord Archer is right to say that conflict keeps people poor. We have helped to build peace and security in Rwanda and Mozambique, and we are doing the same in Sierra Leone and Liberia as well as in Afghanistan and Iraq. I pay tribute to our Armed Forces who are serving with courage and professionalism in those difficult environments. I would also like us to remember the other UK government staff who are working hard to secure our goals in a difficult operating environment.
	The White Paper commits us to increasing our efforts in fragile states and to invest more in at least 10 countries where security is a major issue. The noble Lord, Lord Hannay of Chiswick, raised the question of Darfur. I totally agree that the situation is unacceptable. The total number of displaced people stands at 1.9 million, and 3.6 million people depend on food aid. It really is a test of the UN's responsibility to protect agenda. We are co-operating with the African Union and the UN to establish a credible peacekeeping force as that is the best way to build and maintain peace alongside a fully implemented Darfur peace agreement. We are urging all parties to stop the fighting, resume political dialogue, implement the peace agreement and accept an AU-UN force. The noble Lord, Lord Wallace of Saltaire, mentioned the fact that the AU is overloaded. We are well aware of that. That is why we have given substantial funding to the AU to enable it to carry out its peacekeeping tasks effectively.
	On the wider peace and security agenda, we will help with reintegrating ex-combatants, support access to justice and continue to monitor human rights. I assure the noble Lords, Lord Wallace of Saltaire and Lord Garden, my noble and learned friend Lord Archer of Sandwell and my noble friend Lord Judd that we are committed to reducing the spread of small arms, including through an international arms treaty.
	On the issue of the arms trade, in December we secured a UN resolution to begin a process leading to negotiations on a treaty. We will work with others to deal with the misuse of inappropriate exports of small arms and light weapons. We also aim to ensure that, when assessing export licences, UK arms exportsdo not undermine development, for example by increasing the risk of conflict. I say to the noble Lord, Lord Wallace of Saltaire, that when the strategic arms export licensing laws are reviewed this year, we will examine how well our brokering controls are working and whether they need to be strengthened.
	The noble Earl, Lord Sandwich, mentioned our work in fragile states. We will work in fragile states where we are furthest from meeting the millennium development goals, and where appropriate we will work through the Governments of those states with poverty reduction budget support. Otherwise we will support those Governments through trust funds or through the UN or NGOs.
	My noble and learned friend Lord Archer of Sandwell mentioned the importance of a better co-ordinated humanitarian system. The United Kingdom has led the development of the Central Emergency Response Fund and will provide £14 million a year to its budget. My right honourable friend Hilary Benn is to be congratulated on taking the lead in pushing that reform through the UN. We recognise that many NGOs and the Red Cross movement have a vital role to play in the humanitarian response, but all actors need to work together and to be accountable. We are working for the creation of a humanitarian report and better performance measurement for humanitarian response.
	The noble Viscount, Lord Eccles, likened the current push for development on the African continent to the industrial revolution. I remind him that the context is very different, especially when we look at the issues of environment and climate change, the impact of globalisation and, of course, mass communications. Economic growth is the single most powerful way of pulling people out of poverty. The noble Lord, Lord Crisp, was quite right to emphasise that. Above all, it is the private sector—from farmers and street traders to foreign investors—that creates growth. But Governments have to create the conditions for growth. Aid can also help, and trade is vital. We will continue to press for a trade agreement that enables developing countries to earn their way out of poverty.
	On the issue of micro-credit, raised by the noble Lord, Lord Crisp, we are supporting micro-credit schemes in many parts of the world, including Asia and Africa, and I am happy to write to the noble Lord with more detail. But to make a real long-term difference to reducing poverty, economic growth has to be sustainable. I say to my noble friend Lord Lea of Crondall that we need an average growth rate of about 7 per cent in sub-Saharan Africa to achieve the millennium development goals. I am happy to write to him with the further details he has requested. It is a big thing to ask of countries that are very poor. That is where our approach is different, and here I challenge the comments of the noble Lord, Lord Wallace of Saltaire, about our approach. It is not just about governance; the concept of governance is not new. It is an integrated approach that is about economic development, trade, aid and governance.
	A number of noble Lords mentioned China, including the noble Viscount, Lord Eccles, the noble Lord, Lord Crisp, and, in looking at Asia generally, my noble friend Lady Whitaker. Of course we recognise the power of China in Africa. We welcome the commitment highlighted in China's Africa policy paper to working to help to realise the millennium development goals and the importance that the Chinese attach to the African Union and to NePAD. We also recognise the importance of engagement with China on international development and have encouraged like-minded countries and African countries to engage in taking the lead with the Chinese. We think that the Chinese should be interested in good governance in Africa, partly because a well-governed country will be a more stable place in which to do business.
	As someone who has tried over many years to encourage British business to invest more on the African continent, perhaps I may say that it is not always an easy thing to do. Companies do not necessarily want to invest in countries that they see as unstable. Companies often have a view of the African continent that is based on their understanding of what is happening in one country, not recognising the size and diversity of the continent. That is why we need to focus on a partnership in creating the right conditions for investment. That is why initiatives such as the investment climate facility—which came out of the Commission for Africa report and is a business-led initiative that I had the privilege of helping to launch last year at the World Economic Forum meeting on Africa in Cape Town—are so important. The UK Government have pledged support for that initiative, but it is business that will drive it. We need to look at issues such as the customs duties that countries levy. We need to look at the fact that countries on the African continent are unable to trade with each other in a positive way because of the impact of what happens at their borders. It all seems relatively straightforward and simple to us as part of the European Union but the regional organisations are only beginning to develop such facilities on the African continent.
	We want to ensure that everyone has access to decent healthcare, education, water and sanitation, and the safety net of social security when times are hard. We will make long-term commitments through our 10-year plan so that countries can plan ahead. We have promised to provide £8.5 billion for education in poorer countries over the next 10 years. I say to my noble friend Lord Parekh with respect to helping schools to work with each other that my right honourable friends Gordon Brown and Hilary Benn announced an increase in funding to promote global school partnerships. It is £7 million over three years. A World Classroom booklet published at the beginning of this year will go to all schools on how to set up such partnerships.
	We have also committed £1.5 billion to fighting AIDS over the period 2005-08. My noble friend Lord Judd asked about a strategy on HIV/AIDS. The UK's strategy is set out in Taking Action and reaffirmed in the White Paper. It includes the following priorities: closing the funding gap, improving the international response and strengthening political leadership.
	We have already doubled our spending on water and sanitation to £95 million a year by this year and we will double it again, to £200 million a year, by 2010. We will significantly increase our spending on social security over the next three years.
	Providing basic services is vital but it is not enough; we need to deal with global challenges such as climate change, which was referred to by my noble friend Lady Whitaker and the noble Lord, Lord Hannay of Chiswick. Many poor countries are already struggling to cope with climate change and extreme weather. Unless the world acts together to solve the problem, the situation can only get worse. That is why we have made tackling climate change a top priority. It means giving developing countries access to clean technologies so that they can reduce their greenhouse gas emissions without damaging their economic growth.
	A number of speakers spoke about the importance of joining up work across Government. I cannot endorse that enough. We are taking an integrated approach. A number of speakers—for example, my noble friend Lady Whitaker, the right reverend Prelate the Bishop of Chelmsford and the noble Lords, Lord Hannay of Chiswick and Lord Crisp—also stressed the importance of improving the effectiveness of aid. We are taking a leading role in promoting good donor practice. Perhaps I may write and set out exactly what we are doing as I do not have time to go into the detail now.
	To make progress on issues such as climate change and donor harmonisation, we need to work together. The White Paper sets out ways in which individuals can make a difference. It also sets out the role that the private sector and NGOs can play in this process. I agree with the right reverend Prelate the Bishop of Chelmsford about the need to revisit the relationship between government and civil society. I welcome the right reverend Prelate's commitment as chair of Christian Aid to engage in that discussion.
	The White Paper also commits us to work across government and explains how we are promoting an international system that can meet the challenges of the 21st century. A number of noble Lords mentioned the international system, including my noble friend Lady Whitaker and my noble and learned friend Lord Archer of Sandwell, who mentioned the work of the One World Trust. My noble friend is quite right that there is too much overlap as organisations have grown in the past 60 years. My noble friend Lord Judd and the noble Lord, Lord Hannay of Chiswick, have wide experience in this area, as does my noble friend Lord Brett, who also spoke on this issue.
	We will continue to push for reform in the UN. We want European aid to be more effective. The noble Lord, Lord Wallace of Saltaire, expressed concern about overloading the international system. He is quite right. We as global citizens have huge expectations of the UN and other international organisations. The millennium development goals were set by the world community. The responsibility to protect agenda was set following a push by the world community at the UN. So we need to help the UN and work with it to achieve these objectives. That is why we have put the millennium development goals at the heart of our development agenda.
	I conclude by saying that we have made good progress towards achieving a fairer world, but we need to do a great deal more. A number of speeches mentioned the idealism surrounding the elimination of world poverty, the need for realism, and the importance of recognising enlightened self-interest in the context of international migration. I think we need some idealism, given the scale of the challenge, but we also need to be realistic. It is a global challenge. We all need to work together to meet it, and that is what the White Paper is about.

Baroness Kingsmill: rose to call attention to the United Kingdom's competitiveness in a global economy; and to move for Papers.
	My Lords, I am pleased to open this debate on UK competitiveness in a global economy. As a newcomer to the House of Lords, I feel privileged to be addressing your Lordships on a matter of such importance. Few themes are more central to the future of UK prosperity and I hope that this will be the first of many such debates. I am pleased that so many of my noble colleagues have indicated their interest in this area and I am sure that we will have a most stimulating debate, which will help us understand the changing world, examine the role of government and consider the economic conditions for our future growth and prosperity.
	I want to cover two main areas. I hope to examine some of the key issues that we need to understand about the global economy and what we can do to maximise its benefits to the UK. The global economy offers major opportunities, but only if we are hard-headed in our analysis and focused on excellence.
	I do not think that it is too much of an exaggeration to say that we are now at a pivotal point as we witness the huge global restructuring that is taking place as Asia becomes, with Europe and the United States, a major world economic power. The economies of India and China are powering ahead, growing at phenomenal rates each year. This growth has been hugely advantageous to the developed western economies.
	We in the UK have benefited greatly from the abundance of cheap imports from India and China. These have contributed to the lowering of global inflation and so to lower interest rates. The British consumer is much better off as a result of globalisation and not just because of cheap imports. Our exports of knowledge services have trebled in the past 10 years as globalisation has grown. In fact, it is estimated that the UK is between 10 and 15 per cent richer than it otherwise would be thanks to global trade.
	It has become something of a cliché to talk of the knowledge economy but this is where the future lies for mature economies such as ours if we are competing in the global economy. Traditional manufacturing and agriculture account for less than 20 per cent of our national output and are declining sectors. This is not where we should seek to compete in the global economy. We cannot and should not try to compete on wage costs. India and China with their huge populations have an unassailable advantage when it comes to the supply of cheap labour. They are undergoing their industrial revolution and, as we did in the 19th century, are experiencing the wholesale movement of rural populations into the factories and towns. Increasingly in China, the factories are moving out to the rural areas and new urban centres are growing around them. China now has 40 cities of over 1 million people.
	It is misleading, however, to think that if we cannot compete in low-cost manufacturing, we cannot be competitive in a global economy. Contemporary consumers want more than the satisfaction of their core material needs and are prepared to pay for it. The jacket I am wearing was made in China; however, it was designed in Italy, marketed internationally and sold in Sloane Street. I bought it because it is fashionable and, according to the modern consumer trend analysts, because it creates an unconscious sense of psychological well-being. And it looks quite nice, too. The point is that the value added to the basic manufacturing cost is where the opportunity for the UK lies. This is at the heart of the kind of economic model I have in mind. The production cost of such a jacket as a proportion of the eventual retail price is at most 10 per cent, probably even less. The balance is accounted for by distribution, marketing, wholesale and retail margins. The healthy return on capital accrues not to the primary manufacturer in China but to the designers and retailers in Europe who created the brands and added the value. The creative industries of design, marketing and retail are ones in which the UK excels.
	Will Hutton, in his new book Writing on the Wall, distinguishes between hard knowledge and soft knowledge. By hard knowledge, he means the sort that is needed to build a new chip or a jet engine, to devise a distinctive marketing campaign or invent a new financing vehicle. Soft knowledge is, he argues, the bundle of less tangible production inputs such as leadership, communication, emotional intelligence, innovation and the ability to harness soft and hard knowledge to create goods and services to meet human needs. It is the interaction and combination of both that creates the knowledge economy. This is where the UK needs to concentrate its efforts and focus its energies.
	One of the best stories of UK competitive leadership in the knowledge economy is in the City of London, the most international of all the world's financial and business centres, where our open markets show the success that globalisation can bring and where I have spent many years of my career. The City is internationally owned, internationally managed and internationally staffed, but it is regulated here. It is a great place to do business and it acts as a magnet to a lot of highly skilled and dynamic people. The financial services industry in London is a world leader and a massive contributor to the prosperity of the UK through employment and taxes as well as being one of the most innovative of our business sectors. I must declare an interest here as I advise the Royal Bank of Scotland, which has in the past five years gone from being a small Scottish bank to one of the world's biggest, with a significant interest in China. The City is to financial services what Silicon Valley is to IT and we need to grow more such specialist clusters of knowledge-based businesses—in nanotechnology, for example, or green energy, stem cell research and the creative entertainment and music industries.
	We are already rated among the 10 most competitive economies in the world by the World Economic Forum, which publishes an annual index of the best performing countries distinguished by their competent economic stewardship. We certainly have had competent economic stewardship. We have over the past 10 years enjoyed an unprecedented period of stable economic growth which we should not take for granted. We must build on this and create a strong economic environment which enables business to make the most of the opportunities of the global economy.
	But we must also ensure that our children and young people are educated and equipped with the skills and learning to operate comfortably in such a world. We cannot afford to waste the talents of our people. The proper development and management of our human capital is vital to our competitiveness. As the noble Lord, Lord Leitch, pointed out in his excellent report published recently, our nation's skills are not at present world-class. We have neither the quantity nor the quality of necessary vocational skills. We must do more and will do more to embed a culture of learning in our society. Increased investment is planned in this area to enable us to be more competitive in the global economy and to eliminate inequalities at home.
	I am personally most concerned that we are not harnessing the skills and talents of our women. They are graduating in greater numbers than men and with better degrees and qualifications. Yet, as the report of the EOC published last week points out, they are missing from the senior positions in our economiclife. This is a symptom of poor human capital management which the UK cannot afford. I know that my noble friend Lady Gale shares my concern and has more to say on this point.
	But we cannot merely look at the potential economic opportunities for ourselves in the world. It is the rich countries which are already benefiting from globalisation through the import of cheap manufactured goods and access to new markets. We must in a globalised world recognise that others need help to meet basic needs. The debate today flows on easily and well from that promoted earlier by my noble friend Lady Whitaker. We must be good neighbours in a global world. It is worth reminding ourselves that more than 1 billion people do not have access to clean water; 10 billion children die of preventable childhood diseases; and AIDS, TB, cholera and malaria claim millions of lives throughout the world each year. We have the skills and the resources to tackle this. And this is not an entirely altruistic ambition. It is in our own interests from many points of view, not least that the global nature of travel means that infectious disease is very mobile. It is also the case that it is in our interests from a security point of view that people in the developing world see us as sympathetic to their problems and supportive of their economic and social goals rather than hostile. Healthy, educated people in secure communities working in productive and satisfying jobs make good global neighbours.
	It is clear that the free market is the best way to ensure the most efficient allocation of goods, services, capital and opportunities in a global economy. However, while the free market may ensure efficiency, it cannot, left unregulated, ensure fairness, equality of opportunity and a cohesive society. It is through policies of social justice, combined with policies to encourage economic progress, that conditions can be created where people can make the most of their lives. It is the task of government to create the conditions, the systems and the tools to enable us all to do this, and this must be done in the context of the ever-increasing pace of globalisation. Security, climate change, conflict and world poverty are just some of the challenges that face us all.
	However, globalisation brings with it huge opportunities as well as challenges and how we recognise and respond to these opportunities will shape our lives and those of our children. I beg to move for Papers.

Lord Patten: My Lords, in declaring my business, commercial and City interests, I begin by warmly congratulating the noble Baroness, Lady Kingsmill, on the timing of her speech because competitiveness in this country is at a cusp and it deserves the close attention that she gave it in her excellent and far-ranging speech. I am sure that if my wife, who, like the noble Baroness, is a businesswoman of longstanding, were present in the Chamber, she would share my admiration for the noble Baroness's speech. Furthermore, as the noble Baroness also raised the subject of the very handsome jacket she is wearing, I am sure my wife would want me to point out that a similar check is obtainable in another store, probably at a competitive rate by comparison, of which my wife is a non-executive director—that is, Marks & Spencer.
	I am a great believer in competition and would wish to see a statue raised in Parliament Square to its virtues. I would also wish to hear someone taking part in our debate representing the missing ranks in the Chamber. I know that Bishops are always very busy, but it is unfortunate that we do not often see themin the Chamber taking part in our debates on competitiveness and the economy. I am in order in speaking as I am referring to Bishops in the Chamber. It is sad that such debates are sometimes seen as Prelate-free zones. I would not want that to be the case in future and would encourage Bishops to play a role in guiding us on virtue.
	As regards our competitiveness, we need to have some objective measures in the UK. I shall concentrate on that rather than on the global reach of the noble Baroness, Lady Kingsmill, before examining two other areas, one of which will be familiar: that is, tax and spending levels. They are so important to business and competitiveness. I want then to look at an area that has not received much attention recently but which I think will roar up the political agenda; that is, the importance of integrity and ethics in business not only as good things in themselves but as positive business-getters and going straight to the bottom line in business.
	One could pick and choose lots of statistics on our competitive situation. I have tried not to do that. At best, one can say that the present Government's record was pretty reasonable until the beginning of this century. It then began to fall away. My evidence for that is the World Economic Forum September 2006 report, which points to the UK dropping to tenth place in the rankings, and to the report a month later by our very own and dear Office for National Statistics. On 4 October it reported:
	"UK productivity in 2005, as measured by GDP per worker, was behind the average of the other G7 countries as a group".
	It went on to say that,
	"GDP per worker in the USA is 27 per cent higher than in the United Kingdom".
	But I do not for one moment suggest that the Government have broken the British economy in the same way as I must reflect on the fact that a general serving in the Army has said that they have broken the British Army or, as we all know in the Chamber, they have so successfully broken the Home Office. I do not think that the economic record of the Government has been at all bad. They have done pretty well in leaving to one side and letting them get on with their own business the most sophisticated financial markets in the world and letting them flourish with light-touch but effective regulation. They have also continued to promote a flexible labour market.
	On the other hand, I believe that the Government have overtaxed the businesses of this country. We can see that businesses are acting vigorously by relocating. I will not talk about the sort of lobbying we have on this issue but simply ask the House to reflect on the fact that 19 large British companies such as Omega and Hiscox have relocated. Hiscox, which is an insurance company—here is a reverse declaration of interest: I pay it; it does not pay me—has relocated its insurance business to Bermuda. In oil, Shell has done the same thing and relocated to the Netherlands. Experian has gone to Dublin. The time has come for the Government to look again very seriously indeed, with international and multinational companies such as Kraft spurning the UK, at scrapping corporation tax on foreign dividend income in this country in the interests of trying to preserve our competitive position.
	Unless that is done I believe that in a very short period of time we will see a substantial number of companies moving to new locations, not just in western Europe but to Dubai—to locate in tax zones like that—and smaller companies moving to the Baltic states. That will happen in the next five to10 years. We will see a mass migration out of this country of competitive businesses, which is not what the Chancellor really intended when he introduced the cat's cradle of taxation controls. It means that our pile of tax legislation is second only in its height to that in India.
	Secondly, and lastly, I turn to the importance of integrity, transparency and ethics as vital components in business success and thus in our competitiveness. Just before Christmas, some big institutions in the City, of which the noble Baroness spoke so warmly, said very important things about the importance of ethics. That was heartening. This issue will roar up the agenda. In a letter published just before Christmas, F&C referred to the need to have an investment climate that is,
	"marked by clear, predictable standards and independent enforcement of the rule of law".
	We must never undermine the integrity of the capital markets any more than we must undermine personal integrity. That is why I was also very pleased to read the view of the chief executive officer of Hermes,Mr Mark Anson, stating:
	"Lack of credibility in the regulation of one company can spread to the rest of the stock market creating higher risk premiums and cost of capital".
	These are very important issues indeed for the Government to reflect on.
	I reflect on the very wise words of the present excellent Solicitor-General back in 2004 when he was an industry Minister. In another place he said that poor standards in this respect are "bad for business". I am sure that is a sentiment which he and our present Attorney-General quite often reflect on as they consider the conduct of business people in this country.
	Good business has business interests, but it should have values of transparency, ethical clarity and honesty. These things are business getters, not business losers, and are very important in maintaining our competitive position.

Baroness Valentine: My Lords, I should perhaps begin by saying that my jacket is mail order from Boden. I thank the noble Baroness, Lady Kingsmill, for introducing this debate today. I know that she backs bringing business and government closer together. I would add to that the need to bring business and skills provision closer together, particularly given today's debate. I also endorse her encouragement of more senior roles for women in business.
	I would like to focus on the importance of "Team UK" in competing globally. In an increasingly global economy, our strengths and weaknesses become more noticeable. The UK needs to play to its regional and sectoral strengths. I use a football illustration: there are not many Liverpool fans who would support Wayne Rooney of Manchester United on a weekly basis. However, plenty of those fans support Mr Rooney as a member of the England team when it comes to the World Cup.
	London First, of which I am chief executive, has produced a report, entitled Keeping the UK Competitive. It examined the economic relationship between London and other UK regions and made recommendations to government on spending priorities to support UK competitiveness. Two characteristics of the UK economy stood out. First, 40 per cent of export growth since 2000 has come from London, predominantly from the financial services sector. Secondly, London and the rest of the UK are increasingly inter-dependent rather than competitive. A successful London is more a source of opportunity to Glasgow, Manchester or Birmingham, than a threat.
	Regional economies are structured differently. London is highly specialised in financial and business services, while the north-west and the West Midlands are specialised in manufacturing and East Anglia and north Wales in agriculture. Where significant inter-regional competition exists, it does so between other regions and not with London. Another example of that symbiotic relationship is that there is often a view that London is a brain drain on the rest of the country. What in fact happens is that graduates come to London in their early twenties but in their thirties and forties they often go back with young families to their roots—in the most recent year, 178,000 people migrated out of London to the rest of the UK. So there is in fact a skills transfer back to the rest of the country in people's later careers.
	Businesses based in London sell to consumers in the rest of the UK, and vice versa. Typically, London exports financial and business services and buys manufactured goods. London exported around£125 billion of services to the rest of the UK in 2004 and imported around £110 billion worth of goods—a relatively balanced trade.
	On the global position, London can compete credibly for a bank's European head office. Once won, a London HQ can help Manchester or Edinburgh win secondary offices versus European competitors. London competes for business with world cities such as New York and Tokyo. This global competition is increasingly understood by other UK cities as Birmingham competes with Brussels and Liverpool with Lisbon. So an emerging entente cordial between the capital and other UK cities is helping to attract inward investment: a collaboration born of pragmatism.
	What are the constraints on UK productivity and growth? The report is clear. We need investment in transport and in job-related skills. Our large cities are highly congested. Public transport is patchy in quality and capacity. Overcrowding on London's Underground is unprecedented in extent and unbearable in effect. How can City businesses grow if new employees cannot get to work? This might drive business from the UK—a matter that has been touched on—or deter new employers coming altogether. Sir Rod Eddington's recent report confirmed the importance of transport to the economy. If Government truly recognises that, this year's Comprehensive Spending Review must prioritise transport investment. In particular it must commit to Crossrail.
	Skill deficits and worklessness drag down productivity. To be globally competitive, the UK requires world-class skills training. The current system is not sufficiently responsive to the market's diverse and changing needs. Skills provision must be driven by the market—by demand. That may mean different skills and training offers in different parts of the country.
	Government talk of increased productivity conjures visions of white coats and clipboard time and motion studies, on 1960s production lines—clearly not the right concept for 2007 and entirely inappropriate to the productivity of London and the service sector.
	London has an insatiable demand for high-end skills, to which success against global competition only adds. That demand is, rightly, satisfied by recruiting the world's best. If London stays an attractive place to live and work, our businesses will attract more such stars, benefiting UK plc.
	At the other end of the skills spectrum, many less productive, lower-skilled roles are filled by immigrants, including some 70 per cent of staff in London hotels. But London's real productivity issue relates to those not in work. London has the highest unemployment rate in the UK at a stubborn 8.2 per cent. The reasons for that are complex, including social issues, low aspiration, lack of work experience within the family and opportunities in the informal economy, as well as benefits which can disincentivise employment. Disengaged people need urgent help from skills training providers to return to work. An indigenous, long-term unemployed population is undesirable and unsustainable, both socially and economically. Other UK cities have their own distinct problems. Every region needs flexibility to provide the best training for its own economy, its employers and employees.
	To conclude, the United Kingdom is a successful and competitive economy. We need to recognise and play to the different strengths of the UK regions. As a 20th century business leader, Henry Ford, said:
	"Coming together is a beginning. Keeping together is progress. Working together is success".
	If we work together as cities, regions and nations to maintain and build on our strengths, we will ensure that every citizen has the opportunity to share in that success.

Lord Bhattacharyya: My Lords, I thank my noble friend Lady Kingsmill for securing this debate on such a vital topic. As a former deputy chair of the Competition Commission, she has great expertise in these matters.
	Global competition is nothing new. All my working life I have been wrestling with global competition, especially in the manufacturing sector. I remember the Japanese product invasion that took place in the 1970s. It happened so suddenly and provoked so much debate. I also remember coming back to this country after visiting Japan many times when there was disbelief that that could happen, and being told that it was only because of cheap labour costs. Of course, what Japan exposed was the inefficiency of the manufacturing sector in the West. Our products were old-fashioned and very little innovation was taking place.
	I do not need to tell noble Lords how that competition affected the UK. We were inward-looking and complacent. Our complacency about our products left us far behind. Even then, it was perceived that the Japanese were competitive because of low labour costs and cheaper capital. There was a clamour for protection in the West, but Japan, extremely cleverly, invested in Western assets.
	In the end, we discovered that Japanese growth was due to intelligent investment, rigorous training and an emphasis on quality products. A new lexicon entered the business vocabulary: "just in time", "lean", "total quality" and "team working". Japan was no miracle; it was structured common sense intelligently applied. As a result of Japanese innovation, consumers and economies around the world benefited from an innovative value-for-money product base. The West learned from Japan. The resurgence of the western automotive and white goods industry shows the benefits that we gained from global competition.
	Next was the rise of the tiger economies. At first, their growth was entirely due to their low cost-base, light regulation and good infrastructure. Growth was driven by products made in south-east Asia, but not designed there. South Korea was different. It chose to develop its own product base, R&D and specialist sectors. Today, Korean businesses and houses are the most digitally connected in the world.
	However, during the past 10 years, global competition has taken on a different magnitude with China and India opening their economies. China began by merely producing other people's products, but has now moved on to using its expertise to build her own technologies. The rate of purchase by Chinese companies of foreign technologies is unbelievable. Every time I go there, I see a new Chinese company being formed by taking over a Western company. That is one reason why I am always concerned when we say that we as a nation must concentrate on knowledge-based economies. Knowledge is transferable at the click of a button.
	I remember working with Japanese companies in the early 1980s. Their training and R&D were entirely driven by the private sector. At that point, the Japanese education system trailed the West and companies knew that they would succeed only if they developed a skilled workforce. The same was true in South Korea and is happening today in China—R&D and skills are primarily driven by the private sector. I wish that British corporations were focused on R&D to the same extent. I would not mind having levies if that is the only way to get a skilled workforce in this country.
	There has been a convergence of understanding by Governments of the fiscal frameworks and foreign direct investment required for growth. Almost all of the world's Governments now want to grow their economies and understand the economic drivers of growth to make it happen. As a result, I shall not spend too much time on that. However, I shall mention one thing. I was interested recently by what Chirac said about the reduction of corporate tax rates. We will face more pressure on that front in the coming years, because that is what is happening throughout the world. In our trade with China and India, although they are growing so much, we are languishing as a country. We have not improved our trade relationships with those countries to the extent that our competitors have.
	The great transformation of the global marketplace is the growth of the digital economy. The scale of the change has been breathtaking. Most homes in the UK now have more than 10 microprocessors, found in appliances ranging from phones to washing machines. More than a million UK homes now have broadband access and the figure is growing at an astronomical rate. In the business world, it is no longer possible to imagine a successful business that is not part of the digital economy. The transformation is directly linked to the liberalisation of the global telecoms market. Unbundling has transformed the industry. Competition has driven innovation, cost reduction and new markets. It has been the spark plug for competitiveness in all sectors. Without the digital economy, China and India would not have been able to grow as fast as they have. Take India, where the IT service, back-office and software industries were made possible by the digital economy and made practical by competition in the telecoms industry.
	It is clear that we need the UK to be at the top of that sector. Just imagine how the financial sector would suffer if it fell behind in data security or speed; or how the media industry would look if others took the lead in data-handling and visualisation. I must admit that there are not huge capital costs and I know that a huge amount of people in China and India are working in that area. It does not take much time to take a lead in those areas.
	Here, I must express an interest. I believe so strongly in the importance of the digital economy that I have started a £50 million digital laboratory to help the UK remain at the forefront of digital business research. It is a joint venture between Warwick Manufacturing Group, Warwick University and Advantage West Midlands. I am doing that because data capture, acquisition, reliability, security, simulation and modelling is transforming all sectors from financial services to manufacturing and healthcare. With tremendous innovation in imaging and visualisation, we are able to develop digital diagnosis and prediction. We in the UK are very good in these technologies and we have the advantage that the common language of software is English. However, we must be careful not to be complacent. Every economy in the world wants to be in that market.
	What are the practical applications of that technology? I give just one example. Take the humble car. From the use of modelling to achieve quicker and cheaper design changes to improve the environmental performance of the car, speed sensors and, of course, satellite navigation, digital innovation is transforming the automotive sector. That is one sector. Although we do not have an indigenous automotive manufacturing industry, we are excellent when it comes to consultancy and R&D in this sector. We must not and cannot let this chance slip.
	Industrial production grew by more than 20 per cent in China in 2003-04, and in India GDP is growing at the rate of 9 per cent in the second quarter. Of course there are problems in this country with the infrastructure and with regulations and bureaucracy, but I will tell noble Lords one thing; only last week I heard that 20 million people are now working in the manufacturing sector in the Pearl River Delta alone, up from 1 million in 1990. The rate of change is absolutely phenomenal, and we must take some advantage of the growth in both China and India, which we have not done.
	Many people believe that this expanding productivity is due to cheap labour, but most of these companies are adding and expanding their locations and co-operation in these two countries not because of cheap labour or because they want to export, although of course some companies do, but because they want to be at the centre of this market when it expands. They want their market share, and some of them are doing extremely well.
	Finally, many people will talk about skills but I am quite pessimistic, because we have fiddled around the edges writing reports and changing structures but not dealing with the core of the problem. We will never succeed unless and until the private sector works and pays for the skills, needs and demands of these companies.

Lord Leach of Fairford: My Lords, to see global competition at close quarters, I recommend taking a trip up the Pearl River to what used to be called Canton. There is mile after mile of dormitory towns, with people making goods that used to be made in the West. Nowadays they are paid about $180 a month, but Chinese proprietors are shifting work to Cambodia, where labour is cheaper. A western factory worker or employer looking at this through the train window will see trouble in store, but an enterprising financier or the owner of a great brand will see something different; an emerging market on a scale unparalleled since the arrival of the USA as an economic force at the end of the 19th century.
	Hong Kong, at the mouth of the river, was once famous for textiles, but the industry has migrated north and the city has had to reinvent itself as the Asian hub for a 21st century economy. Let us not forget that Britain also reinvented itself in the 1980s. It was painful, but had we followed a policy of propping up industries and taxing financiers out of business, we might have a sense of moral superiority but the country would now be nigh on bankrupt.
	As things have worked out, Britain has become an advanced service economy. The City of London houses an industry as important to us as Silicon Valley is to the States or the motor industry is to Germany. If I harboured Guy Fawkes-like designs on the City, which would give me a heightened conflict of interest with my directorship of Rothschild, which I declare, I would hatch two plots. First, I would strangle it with rules and statute-based laws, recognising that much of its success has been due to enlightened regulation. Secondly, I would reduce traffic to a standstill. At this stage, I would think I was making good progress. I would count as a triumph the new European financial services action plan, which will cost the City about £20 billion to implement over the next four years. As for transport, I would be spoilt for choice, with the failure to build Crossrail or modernise Heathrow, the state of the Underground, bendy buses, the price of a rail ticket, and so forth.
	I have not forgotten the environment. Whatever the true pace of man-made climate change, it is clear that large amounts of money will be devoted to research, clean energy, and the adaptation to weather effects. That money will not be generated without a successful economy, so London's transport problems must be fixed. Green absolutism, for example about airports, would be counter-productive. As noble Lords have said, we cannot take our pre-eminence as a financial centre for granted. This sort of business is extremely mobile. Parts are already splitting off to Ireland, Bermuda, Asia and Switzerland.
	There is a broader context, too. Britain has fallen in the world competitiveness rankings, as my noble friend has said. Apart from the financial sector, multinational food, tobacco, oil and consumer goods companies have all recently relocated their headquarters abroad. A trickle risks turning into a flood. There is no single explanation for this exodus. Poorly educated school leavers, inadequate infrastructure, regulation, low investment and high taxes have all been blamed at one time or another. Many of these causes are not easily measurable. Investment and productivity figures, which people often like to quote, are often really just mumbo-jumbo, but tax is quantifiable. The Government inherited an economy where only 10 of the world's 30 leading developed nations had a lower corporate tax rate than we have, but now 20 of them are lower. France will overtake us this year. Germany's will be half ours next year. The next Chancellor will inherit deteriorating national finances despite a benign economic environment and years of tax hikes. He will also inherit too complicated a tax system. The EU is not helping either, with its regulatory and protectionist propensities—protectionism being particularly dangerous for an open trading nation such as ours.
	We should not be misled by current figures. It took nearly 10 years for the reforms of the 1980s to show through in hard results, and it could take the same amount of time again for our declining competitiveness to show through in weak figures. If that does happen, it will be no good our flirting with protectionism or blaming regulations that we should have vetoed, departments that we should have reformed, or expensive IT projects that we should never have started. It is time to take responsibility for ourselves. Unless there is a change of direction, either we will slip slowly backwards in step with the EU, which is forecast to decline from over a quarter of world GDP in 1985 to less than an eighth by 2050, or we will see a divisive gap opening up between corporate Britain and domestic or social Britain as companies shift their operations abroad to protect themselves. We should view neither outcome with any equanimity at all.

Lord Bilimoria: My Lords, the question before us today is simple: how can we maintain our place as one of the world's five largest economies, which is respected worldwide and the envy of Europe? I have always said that one of the reasons for Britain's great success is that we have one of the freest and most open markets in the world. Our openness has enabled Britain, and London in particular, to become the world's pre-eminent global financial centre.
	Britain has one of the world's most flexible labour markets and a workforce capable of adapting to change. We have also had a stable economy with a long and sustained period of low inflation and low interest rates. There is a movement in entrepreneurship in Britain, and entrepreneurship is flourishing and celebrated in our country today. There is no question that Britain has become increasingly economically competitive in the last generation. However, we must ask ourselves whether this competitiveness is sustainable. I have serious concerns.
	My first concern is whether Britain has the necessary components of a competitive society and a competitive economy. In a country such as ours, our richest resource is our people. Centuries of innovation and discovery testify to the skills of the British people—skills that have adapted over time to meet new challenges. Yet today almost 5.5 million people of working age are not in employment and are supported by the state. Our productivity, as we have heard, remains below the G7 average. Of our11 year-olds, 120,000 leave primary school unable to read or write properly. Of those students who go on to gain qualifications, a diminishing number have an interest in maths and science. This is a foreboding start for a generation destined to lead us into the new era of the global economy.
	I could, however, take heart from the recent report from Universities UK, Eureka UK, which was packed with world-changing innovations to have come out of British universities over the past 50 years. Certainly, in terms of competitiveness, our universities are one of our greatest strengths, with three British universities among the world's top 10. Even here there is cause for concern, because our universities must compete globally, but with far fewer resources. When I came to the UK from India for my higher education, I was in a minority because many of my contemporaries went to the United States, where universities were perceived to be better and there was more money for scholarships and bursaries. Perception is important. Our image as a country matters. Britain is a world player. We are at the top table in every area. However, a brand is what a brand does. If Britain is to maintain its currency as a destination for students, professionals and investment, we must maintain a good profile and remain a strong brand.
	The future of our competitiveness also means looking outwards, which brings me to my second concern. As we have heard, the global competition has raised its game. We have giant competitors looming, specifically China and India. They are, in many ways, the Goliaths to our David. They are ambitious, liberalising, moving quickly and ravenous for success. India is a massive opportunity for Britain, but despite Britain being one of the world's great foreign investors, and despite a long and close relationship with India, in many ways Britain has been beaten by so many other countries. We once had a head start, but now we are rushing to catch up.
	I say rush, but when I was appointed as UK chairman of the Indo-British Partnership in 2003, the south Asia department of what is today UK Trade and Investment had just cut its staff by six times in the UK. This was at a time when India had already started growing by 5 per cent year on year. Since then, India has been growing by 8 per cent, yet these resources have not been increased in the UK. British business and the Government need to be far more proactive, not only in India or China but worldwide.
	Britain's largest trading partner is, of course, the European Union. This has had its benefits, but has also made us subject to arguably unnecessary amounts of regulation, which stifles British business and makes it uncompetitive. Quite apart from regulations that are forced upon us, very often we inflict these regulations on ourselves. We are eroding, as I said earlier, those very fundamentals on which our prosperity relies. We are increasing the tax burden, as we have heard. It is now almost 40 per cent of GDP. We are complicating taxes, hitting consumers and business alike, and making us less attractive to inward investment. There has also been a huge increase in public sector spending, with the number of public sector employees increasing by more than 500,000 in the past six years, in many cases, I am afraid to say, with not enough to show for it. At the same time investment of £350 billion is needed urgently to improve our infrastructure.
	Security is also fundamental. Our Armed Forces are seriously underfunded, under-resourced and stretched beyond limits. As my noble friend Lord Dear said in his excellent maiden speech, the police in this country are stretched so thinly that their ability to do their jobs is threatened, as is the rapport they once enjoyed with the public. Such issues are inextricably linked, not only to our security, but to our civil society and standard of living. The economy, taxes, spending, education, health, security and infrastructure are surely all of the first importance to our global competitiveness. All these factors contribute to our ability to progress as a country and a people.
	The crux of the matter is that our competitiveness affects all of us, not just business. We need a new alignment of government, business and citizens. This attitude must filter down to every level. We cannot afford to sit back. Everyone must contribute at every stage. The bar worldwide is being raised faster than ever. We are a tiny nation but, historically, we have defied the odds and not only survived but prospered. We are a nation that has been such a great influence around the world. If we are to recapture and sustain that, we need to take action now. We are a wealthy nation, but our wealth cannot last for ever unless we take action now. When I was a child in India, Britain was looked upon as a has-been. What was once the greatest nation on Earth was seen as sick and weak. In the past 25 years Britain has regained its position and re-earned its respect. We must never let that go.

Baroness Gale: My Lords, I congratulate my noble friend Lady Kingsmill on securing this debate and on her excellent opening speech. I declare an interest in that I serve on the board of the Women's National Commission. In order for the UK to compete in the global economy it must surely be vital to use all the talent available.
	This may seem obvious, but I draw noble Lords' attention to the recent Equal Opportunities Commission report, Sexand Power: Who Runs Britain?. It talks about the "missing women" and asks:
	"Where are the women missing from our boardrooms and public life?"
	It goes on to say:
	"If we hope to shatter the glass ceiling we would need to find nearly 6,000 women 'missing' from more than 33,000 top positions of power in Britain today".
	This report shows how painfully slow progress is for women. If the UK wants to be a success in the global market, it needs to maximise the expertise and talent of the entire workforce. In all walks of life there are very few women in top positions, be that in business, industry, the media, the judiciary, politics or public life.
	An article by Larry Elliott in the Guardian on27 November 2006 said:
	"The role played by women in the economy is strange, to say the least. Women do better than men at all levels of the educational system, from primary school to university, and the government wants Britain to be at the cutting edge of the knowledge economy in which brains rather than brawn are the secret of success.
	So it should be simple. Put the people with the smarts in charge and we would all be better off. Yet the latest evidence suggests that the thicker of the two genders remain firmly in control. Women may be making their presence felt in some of the professions—medicine and the law, for example—but men are still firmly in control of high finance, big business and the economics profession".
	Women make up just 10.4 per cent of directors and non-directors in the FTSE 100 companies. According to the Equal Opportunities Commission's report, it will take another 60 years at the current rate of progress to get an equal number of female directors. The same goes for other professions. At the top levels of the Civil Service, for example, 26.3 per cent are women, so at the present rate of progress it will take 20 years to achieve equality in Civil Service top management. In the senior judiciary it will take40 years to achieve an equal number of women. At the moment they make up just 9.8 per cent. As for women MPs, it will take 200 years or 40 general elections to achieve equality.
	The Equal Opportunities Commission speaks of the missing 6,000 women. If the UK is to be competitive in the global economy, these 6,000 women must be found, and it will not be too hard to find them. There is no lack of talented and ambitious women, so what prevents them playing their full part in the public, political and business life of Britain and why are they being denied their right to play that full part as they wish to do? I recognise that there is now equality of opportunity, but while the opportunity is there for women to apply for posts, what I and many others want to see is equality of outcomes. There are many barriers to overcome and the glass ceiling is firmly in place.
	Women want the opportunity to play their full part in keeping the competitive edge of the UK in the global economy. In the public, political and business life of Britain today, women are there, waiting for the chance but being deprived of it. The UK is missing out on this great pool of talent. Employers at every level of business should look at how successful women have been in running their own businesses. Over1 million women in the UK today are self-employed, and the number of self-employed women has increased by 18 per cent in five years. Many become self-employed because they cannot achieve their full potential in the workplace but can prove that they are good and successful businesswomen. The Equal Opportunities Commission report says:
	"The absence of women at the top of public and business life in Britain today is not of their making. Significant barriers remain that prevent women from progressing up the career ladder into positions of power. Unless we drive forward change at the top, remove barriers and take concerted steps to consolidate and build on the progress we have made, there is a risk that we will not only see progress stall but see it go into reverse. The significant number of women 'missing' from positions of power is indicative of our failure to meet the economic and social challenges that confront us".
	Much legislation has been brought forward in recent years to assist women at home and in the workplace, but the law by itself cannot eradicate prejudice, which unfortunately still exists. Employers must accept the fact that by not allowing women to achieve their full potential, by not giving them the promotions they deserve, their businesses too will not reach their full potential. Only by using all the talents of the workforce in the UK will we keep a competitive edge in the global economy.

Lord Lang of Monkton: My Lords, like other noble Lords I begin by complimenting the noble Baroness, Lady Kingsmill, on securing this debate and on her extremely interesting speech, with almost all of which I found myself in agreement. In my seven minutes I should like to address some of the issues she did not have time to cover.
	The need for the United Kingdom to be competitive in a global economy that is evolving faster than ever is fundamental to our future prosperity and well-being as a nation. I shall start on a note of agreement with the Chancellor, who, in his Pre-Budget Report of 1998, described productivity growth as,
	"a fundamental yardstick of economic performance".
	One can happily agree with that sentiment, but performance has sadly not matched the rhetoric. Many factors come into play, and I would like to try to address some of them, but I agree with the Chancellor that productivity and the rate of productivity growth in relation to other nations lies at the heart of the issue of competitiveness.
	In the 1990s, when my own party was in government, we gave high priority to improving productivity, and we deferred some easy and electorally popular decisions in order to achieve it. It was achieved, with annual productivity growth of 2.6 per cent over 1992-97, closing the gap with our major competitors year after year. But for the past five years, our productivity growth has grown by only 1.5 per cent. I accept the warning of my noble friend Lord Leach about the quality of productivity figures and their availability; nevertheless I am comparing like with like, and the trend is clear enough. Certainly the momentum of our growth rate continued in the first few years of the Labour Government, as the Chancellor stuck with our macroeconomic policy. But since 2002 the productivity gap with our G7 partners, which had reduced in the previous decade from 22.6 per cent to 8.2 per cent, has started to widen again. In 2005 only Japan, still in the depths of its own unique internal recession, had lower productivity than Britain among the major economies of the world. The World Economic Forum figures show us dropping from fourth to 11th place in the international competitiveness league, and our productivity growth rate is currently half that of the United States. The same picture is reflected in the growth of the economy, falling from 22nd place to 25th in the European Union growth league.
	It is not just the actual figures that are so damaging to the strange picture the Chancellor seeks to paint of what is in his words a "uniquely high growth economy"; it is the reversal of the tremendously positive trends that he inherited in 1997. I think it is a pity that, in the Chancellor's speech to his own party conference in September last year, he sought to imply that the growth the British economy has enjoyed in the uniquely benign global conditions of recent years all began in May 1997. We have had 38 quarters of uninterrupted growth, he claimed, but it was closer to 58 because it began in the last five years of Sir John Major's Government. From the turn of the century, the forward momentum, the positive trend that we had established, was stalled and lost and now almost all the indicators are negative. The IMF is revising its forward-growth estimates downwards.
	This certainly is not the fault of business, which has had to swim against the tide of government profligacy, as a result of which business investment at 9.5 per cent is currently at its lowest since records began—lower over the past six years than France, Germany and the United States. If time permitted I would have liked to explore excessive regulation, the amount and complexity of regulation and tax law, the inadequate transport policy, the incoherent energy policy, a poor skills base and the lowest education results in the European Union, with one in six school-leavers unable adequately to read and write. These are all contributory causes of these present problems, but I believe that the root cause of our competitiveness failures is the bloated burden of taxation and borrowing that the Chancellor has imposed. This burden has raised tax from 39 per cent of GDP 10 years ago, around the OECD average, to a forecast 42.6 per cent this year, while the OECD average will have fallen below 38 per cent. That is a massive increase and a massive blow to British competitiveness. We are going against the trend so the burden will get worse.
	To take just one example of the countless tax increases that business has faced, I cite the Chancellor's withdrawal of tax credits from pension scheme dividends, which is reckoned to have cost£100 billion so far. It does not just penalise individual pensioners, serious though that is, but forces industry to redirect resources from investing in and growing their businesses to plug the holes in their pension schemes. It affects their stock-market rating and therefore their ability to raise new capital.
	Corporation tax is too high. Other countries where it has been reduced are more competitive. As my noble friends have said, more and more British companies talk of moving abroad to Switzerland, Bermuda and other countries. Fewer foreign companies now talk of coming to Britain. The OECD tells us that unemployment in Britain has risen faster than anywhere else in the developed world. This is despite the huge increase of well over half a million jobs in the public sector, a sector that has grown twice as fast in the last decade as the private sector yet whose productivity is dramatically poorer, as numerous reviews demonstrate.
	Added to the tax burden to fund this splurge of public spending is the increase in borrowing with which Mr Brown has saddled us, which is clearly running out of control. In 2001, he said he would borrow a total of £28 billion over the next five years. The actual figure he borrowed over that period was £128 billion. This tax, spend and borrow policy has not just mortgaged the future but undermined our national competitiveness. It has displaced the private sector, whose enterprise and efficiency create the prosperity on which the public sector relies. No wonder the United Kingdom's structural budget deficit is larger than that of all the major EU countries, including even Italy.
	In conclusion, global competition is getting fiercer but our ability to keep up is being held back. Britain is losing ground because of Britain's Government. If we are not to sink further in the world competitiveness league, we urgently need to return to responsibility in the management of our economic affairs.

Lord Tunnicliffe: My Lords, I too thank the noble Baroness, Lady Kingsmill, for introducing the debate and congratulate her on her opening speech.
	I will use my seven minutes on the narrow issue of better regulation. It was one of the seven issues that, the CBI thought, should be brought to the Chancellor's attention before the Pre-Budget Report. Better regulation is central to the performance of British industry, and international regulatory reform is central to a level playing field for our industry to compete on. I have spent a career in regulated industry, starting work as an airline pilot. I have worked in airlines, railways and the nuclear industry. I declare an interest as chairman of the Rail Safety and Standards Board, a central point for debate of safety regulation in the railway industry. I am employed by the Ministry of Defence and will from April be a non-executive director of Defence Equipment and Support. I will have a special interest in the safety of defence equipment.
	Better regulation is a good thing. Yesterday, we celebrated the creation of the EU market by Lord Cockfield. This market of nearly 400 million citizens trades everything from washing machines to medicines and from heavy industry to services, creating an incredibly diverse supply of goods and services at incredible prices. It is supported by a suite of important, appropriate regulations. Regulations protect people as consumers, as workers and as citizens at large. They protect the environment today and tomorrow.
	If regulation is so wonderful, why does it get such a bad name? First, the benefits of regulation are not perceived. When we go on holiday or travel on business and use an airline, it does not cross our mind that there is an enormous suite of regulations standing behind that operation, so that aeroplanes and aeroplane services are traded in a single standard international community. International boundaries disappear because the aeroplanes operate to a common standard. The enormous suite of regulations that aviation works within is not perceived by the consumer, who now enjoys a diversity and price of aviation unthinkable two or three decades ago.
	Secondly, regulation has benefits but also burdens. It is unusual for the benefit and the burden to fall in the same place. Generally, the benefits accrue to individuals and society and the burden, at least in the first place, to industry. Of course, any burden to industry comes back to us as individuals. That means that regulation has an essential tension all of its own.
	Regulation is complex. The idea—the crucial test—that the benefits should be greater than the burden is simple. In the enormously complex world that we live and trade in, the outcome is complicated. Regulation can be perverse, and that perversity often comes from ourselves. Political intrusion in regulation usually produces bad regulation. Perceived bad outcomes are not usually sensibly and proportionately addressed by knee-jerk reaction from politicians.
	What have the Government done to create better regulation? I believe that their record is good. They have introduced over the years the Better Regulation Task Force or executive or commission, whatever you want to call it—its name has constantly changed. Its work is professional, and it brings forward good results. The Hampton report of May 2005 set a basis for the better regulation agenda. The Better Regulation Commission's report of October 2006, Risk, Responsibility and Regulation: Whose Risk Is It Anyway? is, as much as you can ever get in this world, a racy read on the subject. The Davidson review looked at gold plating; the review of penalties came out in November 2006; the Legislative and Regulatory Reform Act came out in November 2006; and the Government published their simplification plans in December 2006.
	We have made good progress, but we must do much more. Our efforts at regulatory reform put us in the forefront of efforts in the developed world. However, our language on the subject is naïve. It is not simply cutting red tape and simplifying; it goes to the central test of regulation: is the benefit significantly greater than the burden? Can the burden be discharged efficiently?
	We must do more. What can we do more? Who should do it? It has to be those who know; it has to be businesses, often through their trade associations, regulators, Governments, pressure groups. They must work together more—I mean work, not just throw across the table one-line answers to each other—and they must understand more. Regulators must understand the burden that they bring upon business in particular; business must understand better what benefits the regulators are trying to bring about. They must try to produce fit-for-purpose outcomes, both in new regulations and the continuous review of old regulations, to make sure that the test of proportionality is achieved. We must work in the European Union and the wider trade community so that the benefits of better regulation are widely shared and we create a level playing field in which to live and trade.
	Better regulation means a better world for everyone. It deserves appropriate resources and some of our best talent, and respect, support and gratitude for the practitioners who provide it.

Baroness Warwick of Undercliffe: My Lords, I am delighted to be able to take part in this timely debate, called by my noble friend Lady Kingsmill. It is clear from every contribution to the debate that the UK faces a number of challenges to its future competitiveness. Attention has been drawn in particular to the economies of China and India, which are growing dramatically. That offers major opportunities for western companies, including those of the UK, but it also presents major challenges. Not only are those economies driving us out of business at the low-skills, low-cost, low-tech end of the spectrum; they will increasingly present a challenge to our competitiveness in high-skills, high-tech business. Spend on Chinese research and development tripled between 1998 and 2003. The Chinese contribution to scientific journals now stands at 40,000 papers,5.1 per cent of the total. It was only 0.4 per cent at the beginning of the 1980s. Asia increasingly offers a favourable business climate, and countries will increasingly invest and locate their business in Asia in response to that growing strength.
	Other major challenges include the impact of the expansion of the European Union, creating a bigger trading zone. Again, there are opportunities here as inward migration makes a substantial contribution to our economy, but there are also challenges. The ageing workforce in the UK and our falling birth rate create new imperatives for us to invest in lifelong learning, to ensure our population can be more productive for longer. Those are big issues that will need long-term thinking to resolve. Some of them will need support from our European partners, the Commonwealth and the United States; others we will have to resolve on our own. I look forward to hearing from the Minister how the Government expect to tackle those many and varied challenges over the coming years.
	The House will no doubt remember the Chancellor of the Exchequer's Statement to Parliament on the Pre-Budget Report last year when he said that the key to the UK's future economic competitiveness lies in our ability,
	"to out-innovate and out-perform competitors by the excellence of our science and education".—[Official Report, Commons, 6/12/06; col. 306.]
	UK universities are already playing a vital role in meeting the challenge that the Chancellor described. Because of that increasing role, I want to briefly highlight the importance of higher education to the UK's competitiveness and the knowledge economy. I know that this subject is close to the heart of the noble Baroness, Lady Kingsmill, who has been pro-chancellor of Brunel University and will thus recognise how crucial this issue is. At this point, I should declare my interest as chief executive of Universities UK.
	As the recently published Leitch review, conducted by my noble friend Lord Leitch and the Treasury, makes clear, the UK currently enjoys relative economic strength and stability. We have seen 14 years of unbroken growth and have the highest employment rate in the G7, but the global economy is changing and, as Leitch says, we will have to run to stand still. The UK's productivity has improved in recent years but still lags behind that of comparator nations. The average French worker produces 20 per cent more per hour than the average UK worker, while the average German worker produces 13 per cent more and the average American worker 18 per cent more.
	Although recent research has attributed 10 to15 per cent of the productivity gap between the USA and the UK to differences in management practices, Leitch points to the UK's relatively poor skills base as the major underlying cause. While the UK's skills base has improved over recent years, other countries have been improving their skills too—and often from a higher base. As a result the UK lies 17th in the league table for low skills, 20th for intermediate skills and 11th for high skills. The noble Lord, Lord Leitch, also makes it clear that there is no doubt that the higher education sector will play an increasingly important role in engaging with employers to provide the higher level skills essential to meeting the economic challenges facing the UK.
	The growing number of partnerships between universities and business and industry is recognised by both sides, as is the importance of teaching and knowledge transfer in enhancing UK competitiveness. I am pleased that the Government have set an ambitious target for increasing UK spending on research and development to 2.5 per cent of GDP by 2014. As part of that, I know the Government also aim to increase private investment in R&D to 1.7 per cent of GDP, and I welcome significant increases in public spending through the last and current spending reviews. I also welcome the increased support for business investment in R&D through tax credits, including their extension to companies with between 250 and 500 employees as part of the 2006 Budget.
	However, noble Lords may be interested to learn that 43 per cent of US investment in higher education comes from public sources, amounting to 1.25 per cent of GDP compared to only 0.8 per cent in the UK. I hope the Minister will agree with the comments attributed to the Chancellor, Gordon Brown, that
	"this is not a figure that can stay at that level".
	We cannot escape the conclusion that investment from both public and private sources needs to increase.
	We certainly need to build on our graduate numbers if we are to continue to compete with the4 million graduates per year now pouring out of Indian and Chinese restaurants.

Lord Puttnam: My Lords, I join every other speaker in congratulating my noble friend Lady Kingsmill on a wide-ranging and extremely stimulating speech, and in making what I regard as a very important debate possible. I shall also entirely understand if my noble friend Lady Warwick wants to pop out for a sandwich while I speak.
	How do we best prepare the UK to prosper and thrive on a sustainable basis in this early part of the 21st century? There are many in this House who have forgotten more than I will ever know about British political history but, with that caveat, I should like to begin by mentioning one small and fairly recent sideshow of our political heritage. "Butskellism" is of course often invoked, for the most part negatively, to describe the consensus that existed in the 1950s around a commitment to a mixed economy, and the future of the welfare state in particular. But, in truth, that consensus was far more imagined than real. There was both a socialist and a conservative vision of the role of the welfare state in delivering a fair and equitable society, and those visions were quite visibly distinct. It is my contention that, more than 50 years on, when it comes to the issue we are discussing today—how best to promote our nation's competitiveness—there is, indeed, a consensus of a kind that would have made the staunchest Butskellite of the mid-1950s positively giddy with excitement.
	The consensus has evolved with regard to those forces which drive competitiveness. They can be summed up as a well educated and highly skilled workforce and a knowledge economy built on the twin pillars of creativity and innovation.
	As this debate has already demonstrated, there is a large measure of agreement among all the Benches of this House regarding investment in skills and knowledge as the key drivers of competitiveness. I go further. I believe that anyone who reads any recent speech by just about any senior and informed politician can only be struck by the remarkable degree of agreement which has come to exist on these core issues. In fairness, I should say that the noble Lord, Lord Forsyth, who I am delighted to see is present, has offered a mildly dissonant voice in his recent report on taxation, but there are not many such voices.
	The problem lies in the fact that we have assiduously sustained a political system which actively encourages the adversarial at the expense of the common ground, even in situations in which a thoughtful consensus is overwhelmingly clear.This tendency is, of course, aided and abetted by parts of the media in their search for political "entertainment". As a consequence, it is all but impossible to discern the sometimes quite remarkable extent of agreement through the fog of political warfare.
	Some noble Lords may well have become concerned that I have finally lost my marbles in being naive enough to believe that true consensus could, or even should, prevail in even a small part of the political forest. But if we are remotely serious about sustaining our competitiveness in the coming decades, then surely we should all be learning from those economies that have developed a vision for themselves built around consensus, and have then had the courage to stay with that vision across several decades.
	One such economy is that of Finland. It ranks second in the World Economic Forum's global competitiveness index. In the interests of fairness, as a proud trustee of Davos, I think that the World Economic Forum may well be entitled to a royalty on today's edition of Hansard. Finland also ranks number one with regard to its commitment to higher education and training, a position it has maintained for many years now. According to the authors of the index, the Finnish economy demonstrates that:
	"A world-class educational attainment and a focus on technology and innovation are a successful strategy for maintaining competitiveness".
	The cornerstones of success for the Finnish economy were created over several decades, through a consistent commitment to increasing R&D expenditure and to investing in the skills of its workforce. This contrasts in many ways to what seems to me to be the short-termism of the private equity world which now controls a significant proportion of British business, with its quite undisguised commitment to stripping out costs and seeking an early exit. This undermines our ability to see our way through towards any form of sustainable economy, but I appear to be entirely alone in this belief.
	Several expert commentators have observed that Finland's success can be directly attributed to a political consensus that opportunities are based on knowledge. As I have suggested, in the UK there now appears to be a similar settled consensus that the knowledge-based industries—IT, pharmaceuticals, media design and so on—are for us the engines of long-term growth. But as a nation we seem strangely unwilling to provide the type of long-term investment that produces sustainable growth in this overwhelmingly knowledge-based sector.
	According to the most recent figures available from the OECD, the UK's total R&D investment as a share of GDP remains significantly lower than the OECD average. Since 1997 it has hovered at around 1.8 per cent of our gross domestic product. The OECD average is around 2.5 per cent. The US manages2.8 per cent, while the Finns invest 3.5 per cent. What is it that we know, and they do not? Or could it be the other way around? That is a question that only our grandchildren will be able to answer and I fear for them if we happen to have got it wrong.
	There are others who argue that we can afford to invest less in R&D because we have such a strong financial services sector. But surely financial services are notoriously cyclically vulnerable. For instance, they have always seemed to me to be prone to displays of irrational exuberance during each economic boom, frequently leaving a trail of pain behind them. Moreover, they are largely concentrated in London and the south-east, thereby serving only to exacerbate regional economic and social disparities. The idea that the financial services sector can deliver us sufficient competitive advantage in and of itself is surely an illusion. I have spent much of the past 15 years arguing for the importance of the creative industries to develop our competitiveness. But I have never for one moment believed that the creative economy, if separated from a robust manufacturing economy, could deliver sustained competitiveness. That being the case, it is my hope that we might find it possible to stop squabbling at the margins and start investing intelligently in what will become all our children's futures.

Lord Newby: My Lords, I join other noble Lords in congratulating the noble Baroness, Lady Kingsmill, on initiating this debate. I particularly enjoyed the example of her suit to demonstrate the global nature of production and marketing. I should perhaps complete this by saying that my vote, in terms of a suit, goes to the wife of the noble Lord, Lord Puttnam, rather than the retailers of Sloane Street but I am not sure whether it has given me the boost in psychological well-being that the noble Baroness has clearly achieved.
	How competitive are we? On most headline figures we do not do too badly. Everybody has been looking at the World Economic Forum figures. We are 10th, down from ninth, but it is a pretty high level and looks quite good in comparison to China, which is 54th. I suspect that that raises questions in some noble Lords' minds about the appropriateness of the index in every last respect. But the problems that the noble Lord, Lord Sheikh, mentioned such as transparency and openness in China explain why they do not do so well in some areas as in others and why we still do pretty well overall.
	One figure which should give us pause for thought before we get too enthusiastic about our 10th position is an old-fashioned one that has not been mentioned today: the balance of trade. It says something about one's competitiveness if the balance of trade is adverse. The fact that in November, the latest month for which we have figures, it was negative to the tune of £4.7 billion, despite a significant surplus concerning services, should give us pause for thought.
	I have one final point about the nature of competitive economies, which flows from some of the indexes. The noble Lord, Lord Puttnam, talked about Finland, which is by all accounts and measures one of the most competitive countries. Quite a large proportion of the most competitive countries are also by international comparisons high-tax countries. Therefore, while I understand some of the concerns expressed by the noble Lord, Lord Lang, about taxation levels, there is no straightforward correlation between the level of tax and competitiveness. You can have high tax and low competitiveness internationally, but equally you can have the obverse.
	There are clearly some things that we are very good at as a nation. Financial services and other professional services have been mentioned. The noble Lord, Lord Puttnam, mentioned the creative industries. We are global leaders in a number of these respects. We are also still global leaders in some areas of manufacturing, although not as many as we would like. It is a mistake to write off manufacturing as it has become almost trendy to do in some quarters in the UK. In the past few months, we have seen how the research into a plastic chip has been led by the UK. Whether we will manufacture it here is an interesting question, but at least the research is happening here. In recent weeks, we have seen the announcement of a new kind of stainless silver coming out of Sheffield, a very traditional manufacturing industry that is reviving itself by adopting very high levels of research and innovation. It is still a model in a number of respects.
	There is, however, clearly a sense that we could do better, and that in some areas, at least, we are not doing as well as in the past. Regulation has been mentioned. The noble Lord, Lord Tunnicliffe, gave a very balanced view of why we need regulation but how we need to watch that it does not take over. The problem here is not to do with a Government; it is about a gold-plating mentality that certainly obtained when I was in the Civil Service and that has not changed much since then.
	The second area of concern is tax. In the recent CBI/MORI survey, there is an interesting hierarchy of the problems perceived by business regarding tax. The first perceived problem is complexity. Here, as noble Lords have pointed out, this is a real problem. We have more tax legislation than any other major economy in the world except India. Under this Chancellor, the number of pages of tax legislation has increased exponentially. We on these Benches have suggested that one way of cutting through a lot of that is to have a general anti-avoidance rule. It is a controversial proposal, but it is a way of dealing with the issue. One thing that slightly frustrates me about debates such as this one is that it is very easy to analyse the problems, and we have heard rather more of that, necessarily perhaps, than about practical ways of grappling with them.
	The second problem that business has with the tax system is compliance costs and the demands of Her Majesty's Revenue and Customs in its current crack-down on companies' taxation matters. This is in part a predictable consequence of merging the Inland Revenue and Her Majesty's Customs and Excise. Having worked for Customs and Excise, I can see the hand of some of my former colleagues in how it is attempting to deal with business. They know an awful lot about smuggling, and in some cases rather less about long-term business planning.
	The third area that worries people in business is the headline level of corporation tax, given that across the developed world it is coming down. We on these Benches have proposed that by cutting out a raft of relief you can make modest cuts in corporation tax, but the challenge for all of us who would like to see lower corporation tax is to explain where we will find the money to do so.
	Britain's big problem in competitiveness is skills, to which a number of noble Lords referred. It is worth repeating some of the figures: out of the OECD's 30 countries, we are 17th in terms of low skills, 20th in terms of intermediate skills and only 11th in high skills. That means that 5 million adults are functionally illiterate and, as noble Lords have said, one in six school-leavers cannot read, write or add up properly. Those are scandalous figures, which we have become used to; despite all the additional funding in this area, we have not dealt with it satisfactorily and there will be a long period of hard work to make progress, not just in absolute terms but more importantly in comparison with our major competitors.
	In recent weeks, the report by the noble Lord, Lord Leitch, has been published; it is a compelling analysis of why we need a highly skilled workforce and of the current shortcomings of the skills system. He set very high attainment targets for 2020 that he believes are necessary if we are to remain competitive. But a number of issues in the report cause concern to many, including noble Lords on these Benches. It suggests that there should be a voluntary pledge by employers to train employees at work to level 2, and that if there is insufficient progress by 2010 it should be made mandatory. Why on earth does he think that there could be sufficient progress by 2010 when that has not happened so far? If you believe that that is so important, you should make such pledges mandatory now and stop fiddling about.
	The noble Lord, Lord Leitch, gives a huge role to skills councils in simplifying and approving vocational training courses and setting attainment targets for new qualifications in their sector. From what I have seen of sector skills councils, they have generated a lot of good work, but I am not convinced at all that they are all capable of taking on such a role. They do not necessarily have the staff, and I am not sure that they have the buy-in from sufficient employers. Other major issues in that area need to be examined in more detail in relation to the Leitch report. I hope that your Lordships' House will soon have the opportunity to do so.
	To sum up, I think that we all agree that competitiveness touches the lives of every citizen in the UK. Today's debate has been a useful rehearsal of the issues, but the key factor in the period ahead is ensuring that we take the necessary action to ensure that the UK remains both competitive and prosperous.

Baroness Noakes: My Lords, along with other noble Lords, I thank the noble Baroness, Lady Kingsmill, for providing this opportunity to debate the UK's competitiveness in a global economy. It is a subject that has always been close to the hearts of those on these Benches, but today has demonstrated that the issue is close to the hearts of those from all parts of the House and that there is a consensus that the competitiveness of the UK is a key issue for this country.
	One undeniable and uncomfortable fact is that the UK's position in the global league tables, as many noble Lords have mentioned, has weakened significantly in the past 10 years. Our position is different in different league tables, but the overall answer is always the same: that the UK is becoming less competitive. These Benches have often raised this issue with Ministers, who have tended to be in denial on the subject, usually choosing to quote back at us a few favourable statistics, rather than facing the facts. We now have a new Minister dealing with Treasury matters and I welcome the noble Lord, Lord Davies, to that position. I am, therefore, full of hope that when he winds up he will be brave and will address the issues, rather than deny them.
	The worst outcome for the UK would be for our performance to drift constantly downwards in comparison with our international competitors so that we end up among the also-rans. If the UK does not become sufficiently competitive against the leading economies of the world, our exporters will suffer, we will fail to attract sufficient investment and our economy will eventually run out of steam. That is why we welcome this debate.
	Much reference has been made to the World Economic Forum's global competitiveness index, where we are now 10th. The important thing is that we were fourth in 1997 and while the noble Baroness, Lady Kingsmill, said we were in the top 10, she failed to mention the important direction of travel. The index concentrates in particular on factors underlying productivity growth because that in the long run drives economic growth. My noble friend Lord Lang has already quoted the Chancellor on productivity back in 1998 and rehearsed the rather dismal productivity performance statistics of the UK, particularly in the past six years or so.
	It is perhaps not surprising that we do not do as well as the US, it being an even more open and nimble economy, but it is humiliating that Germany and France still beat us. Our overall productivity statistics are impaired by the performance of the public sector. Even with the Office for National Statistics at its most creative, it has been clear that public sector productivity has gone backwards in the past eight or nine years and money has been wasted. Public service reform is an urgent matter for the health of our economy but we are pessimistic about the Government's ability to deliver real and lasting public sector reform.
	The more important issues that impact on our competitiveness include regulation, education, our transport infrastructure and taxation. All of these have been mentioned by other noble Lords. Let me start with regulation. The Government often talk a good Conservative story on regulation but I do not think they share our philosophy. When we were in power, we had a Deregulation Task Force which the Government turned into a Better Regulation Task Force. Any businessman will tell you that better regulation is no substitute for less regulation. In the past 10 years we have definitely seen an overall increase in the amount of regulation.
	There have been recent initiatives to reduce the administrative burdens of regulation by 25 per cent. If they are delivered, they will help, but only at the margin. They will not significantly attack the overall burden of regulation, which is estimated to cost over £120 billion each year. More importantly, initiatives to tidy up the administrative side of regulation do not really reflect a change of sentiment in the Government. They do not stem the tide of new regulations or ratchet the regulatory burden down. What businesses need is a commitment to less regulation year after year.
	That may mean standing up to Europe, which is the source of most of our new regulatory burdens imposed in the UK. We believe that the Government often sign up to European initiatives without giving enough thought to the balance of advantage for the UK. My noble friend Lord Leach pointed to the£20 billion price tag attached to the financial services action plan, but that plan delivers little or no tangible benefit for the UK and it would certainly contribute very little to helping the UK's competitiveness in global financial markets, which is far more important to the UK than the markets within Europe.
	On education, which many noble Lords have referred to, too many children emerge from schools with insufficient basic skills. The statistics that came out today on achievements in English and maths at GCSE are shocking. Higher education and further education still do not produce enough of what employers actually need. Against that background, it is perhaps no surprise that in the past 10 years unemployment among 16 to 24 year-olds has worsened.
	On transport, the Government's contribution has not been sunny. They published a 10-year strategy in 2000, but that was never going to be delivered and it is no longer mentioned in polite company. Last year, the Department for Transport was described by the Transport Select Committee of another place as,
	"well intentioned but sluggish and sometimes muddled".
	The Department for Transport concentrated on renationalising part of the railways rather than delivering an infrastructure to support British business and the Government have dithered over Crossrail, a project which many believe is important to the future of London, which in turn is a major contributor to the UK's GDP growth, as the noble Baroness, Lady Valentine, knows only too well.
	The Treasury has published many pages on productivity and competitiveness, but it has not yet grasped that part of the problem lies at its own door. Several noble Lords referred today to the increased burden of taxation which is dragging down our economy. The UK has been slipping down all the published rankings of tax competitiveness, as well as the overall ones that we have discussed. I am indebted to my noble friend Lord Forsyth of Drumlean for the insightful analysis contained in the report of his Tax Reform Commission, Tax Matters. I am delighted to see him in his place today. I recommend anyone interested in our competitive position to read my noble friend's report on taxation. It contains excellent analysis and many useful suggestions.
	Our tax system is among the most complex in the world. The World Bank has said that its complexity is now a critical threat to our competitiveness. The Government have never responded seriously to our calls for a policy of tax simplification and seem convinced that complexity is a natural by-product of tax avoidance. There are other ways, one of which was mentioned by the noble Lord, Lord Newby, but a completely different mindset is required from that currently found in the Treasury.
	On the tax rate, referred to by my noble friend Lord Patten, we once led the way with our corporation tax rates, but we have fallen far behind. The Government usually say that corporate taxes as a percentage of GDP are relatively low in OECD terms. So it's all right then. But that completely misses the point. Does the Minister seriously think that global businesses looking to invest look at taxes as a percentage of GDP? No, they do not. What is important is the tax rate that applies to them. The truth is that the rates of corporation tax have stayed static in this country while other countries have been moving theirs downwards. That is why we are now above average rather than below. Corporation tax, referred to today, is only one part of the problem. Other taxes such as employers' national insurance, irrecoverable value added tax, business rates and so on roughly double the amount that companies pay, according to an analysis prepared last year by the accountancy firm PricewaterhouseCoopers.
	All of this adds up to an erosion of the UK's former competitive advantages. The UK's performance in terms of export market share over the past 10 years, particularly in manufacturing, is poor. Our export growth to India and China, already mentioned, has lagged behind countries such as Germany. Do the Government believe there is any explanation for this other than falling competitiveness? What other explanation is there for the low levels of business investment as a proportion of GDP in the past few years? Manufacturing investment has reduced by nearly 30 per cent since 1997 and we think that manufacturing is an important element in the UK. I was sorry to hear the noble Baroness, Lady Kingsmill, practically write off the sector.
	We often hear about record inward investment. Those headline figures are distorted by a number of things. If you look below that, the underlying capital investment by overseas companies has also been falling as a percentage of GDP, and the DTI's own analysis shows that the number of new jobs created by overseas investment has been falling.
	Without strong business investment, where will our economy be in a few years' time? When we look behind the statistics are we not hearing a wake-up call from businesses to say that the UK needs new policies to ensure its competitiveness? That was the strong message from the excellent speech of the noble Lord, Lord Bhattacharyya. My noble friend Lord Sheikh gave the Minister a shopping list specifically for the insurance sector. I sincerely hope that the Minister will be responding positively today. We believe that if these issues are not addressed, the UK will slip even further behind in its international competitiveness, and our country's citizens deserve far better than that.

Lord Davies of Oldham: My Lords, I begin with an apology. I am afraid that I am the holder of a very heavy cold, and I hope my voice will last for the brief time that I have to make this reply. I begin also with two expressions of gratitude—first to the noble Baroness, Lady Noakes, for welcoming me to this brief, which I accept with great enthusiasm. Secondly, I convey the debt of gratitude that the whole House owes to my noble friend Lady Kingsmill for the topic she has introduced, which in many ways is as important as any topic one could think of that is currently before the country. I am grateful also for the way in which she introduced the topic. She identified not only the challenges we face in globalisation but the benefits we derive from it when we respond to it intelligently.
	There is no doubt that, in many respects, this country's economic growth in recent years has occurred because we have been well placed to respond to the global challenge. My noble friend Lord Bhattacharyya, with all the authority he brings to the issue, emphasised Britain's position in the digital industries. We all recognise that it is in the levels of intellect, innovation and high skills that we will secure our future. Incidentally, I agree with the noble Baroness, Lady Noakes, that we should not be dismissive of manufacturing industry. It is still one-sixth of our economy, and substantial parts of our manufacturing industry are still hugely successful. Nevertheless we all recognise that, in a changing world, we need to trade in high-value goods. That puts a very heavy premium on investing in the skills of our people and their ability to meet the challenges of the new industries and the new opportunities.
	I counsel a little against some of the more pessimistic expressions of opinion on the current state of the economy. The slippage to the position of tenth from ninth is hardly, as the noble Lord, Lord Newby, identified, a calamity for the nation. It is a matter that we need to address. But I do not think that we can then suggest that everything is running heavily against Britain sustaining its position in the world. The UNCTAD World Investment Report 2006, released on 16 October last year, shows that, in 2005, the UK had the world's largest inflow of inward direct investment, at $165 billion. We are not going to get that investment unless we have the right environment. Inflows to the UK in 2005 accounted for 39 per cent of all FDI inflows to the G7 countries. That is a mark of the success of the economy. The OECD still ranks the UK as among the most attractive places for direct investment in the world, commenting that,
	"EU members led by Britain, have the lowest barriers to"
	direct investment in the industrialised world. So it will not do for noble Lords opposite to be too pejorative about present concerns, although I agree that we must look to the future and identify the issues most conducive to Britain improving its position. That is what the Government have set out to do.
	As for the illustrations of companies that seek to relocate elsewhere, in a global economy there are bound to be outflows as well as inflows. Some major companies will move elsewhere. The idea that somehow one can create a static base or a base with only inflows is a fallacy. Consequently, I do not take too seriously the representations that suggested that suddenly the British economy had become an unwelcome base for many global players.
	One theme in the debate for which I was grateful was that raised by my noble friend Lady Gale—

Lord Davies of Oldham: My Lords, I have only a short time in which to reply to a debate in which there have been 16 contributors, so perhaps the noble Lord will forgive me on this occasion.
	A key theme followed by a number of speakers in the debate was voiced most completely by my noble friend Lady Gale, concerning the role of women in society and why it is important that we extend equality of opportunity and create a more equal society. I cannot go into great detail on that in such a limited time, but my noble friend will know of the Government's strenuous commitment to extend equality of opportunity and improve the position of women in society. We have a programme costing half a billion pounds to promote an increase in the number of senior-quality jobs available part-time, because there is no doubt that the quality and availability of part-time employment is very important to women.
	Apropos of this debate, if one wanted to see a mark of change, consider any Lords debate a decade ago on economics. I very much doubt if five of the16 contributors or the introducer of the debate would have been a woman. We can take pride that reform as attained in this House—by a Labour Government, of course—has produced some progress, to the great benefit of all the work that we have been considering today.
	The issue of skills in the economy, which of course depends on the participation of women on equal terms with men, was emphasised by my noble friends Lord Puttnam and Lady Warwick, who, from different but equally informed perspectives, said that we will need to invest greater resources in research and design and in our universities. Although it will be recognised that a balance must always be struck between public sector and private sector investment, as the noble Baroness, Lady Noakes, will be the first to point out, there is no doubt that public investment is crucial to the development of the competitive economy in improving skills in our society. That is why the Leitch report is of great significance in identifying the areas in which we are still behind our European competitors. This is an area in which we have been identified as falling behind leading competitors for very many years, and it is an area to which the Government are obliged to pay increasing attention. It is important not only to improve the skills at the highest level with regard to university graduates and researchers, but, as noble Lords have said, to ensure that those who leave school have gained the necessary qualifications to fulfil the higher demands of the jobs that we envisage in the future.
	The noble Baroness, Lady Valentine, and the noble Lord, Lord Leach, referred to the needs of the City for enlightened regulation, which I take to mean appropriate and effective regulation. We cannot meet the request of the noble Lord, Lord Patten, unless we have some form of regulation. There is also the need to ensure that that regulation is kept to the minimum and is clear. Both the noble Baroness and the noble Lord, Lord Leach, emphasised the importance to the City of our transport policies. There is no doubt that we need to make progress on Crossrail, and that we cannot expect the City of London to sustain its crucial role in the economy, which no one underestimates, unless we have a transport system that is fit for purpose and serves London well.
	There have been improvements in recent years. The direct link to Heathrow from Paddington has improved the position, and increased investment in the Underground will also gradually give rise to an improvement, although I am all too aware as a daily user of the Tube how painful the process of investment and renewal of the track and signalling is for passengers. Nevertheless, that investment is essential. We also need to ensure that we deal with congestion, which confronts all of us in this House and the whole country with very interesting questions about how we use cars on our scarce road space. The limited experiment to deal with congestion in London was too extensive for some, but there is no doubt that we will need to tackle the concept of road pricing, lest we and our economy become overwhelmed by clogged roads through the sheer weight of the number of vehicles used on a limited amount of road space.
	Several noble Lords, and the noble Lord, Lord Bilimoria, in particular, stressed the massive significance of the rapid development of the economies of China and India. There is no doubt that they are a challenge to whole areas of jobs and production in traditional industries in the West. But, as the noble Lord, Lord Leach, said, where some see a threat, others also see an opportunity. There is no doubt that those economies will also present great opportunities for British companies to export to them. We need to make better progress than we have so far. Although Britain scores well against our European competitors in most statistics, that does not alter the signs that our position may not be so far advanced, particularly in respect of China. I accept the charge of the noble Lord, Lord Bilimoria, that we are not as well placed as we might hope to be with regard to India. Certainly work needs to be done in that direction.
	There have been concerns about aspects of regulation, a subject which my noble friend Lord Tunnicliffe concentrated on in much of his speech. The UK is ranked second in the OECD on that measure, with a regulatory environment found to be less restrictive than that of nearly all other countries. The US is ranked fourth, Germany 18th and France 24th. I recognise that regulation can be irksome and that it is in the nature of the enterprising spirit to chafe against control, but we need to keep things in proportion. It is not the case that Britain is overregulated. It will be recognised that in recent years the Government have addressed the question of removing the more irksome and unnecessary regulations in order to make our economy more effective.
	The noble Baroness, Lady Noakes, raised the question of productivity in a considered manner and without aggression. I am not surprised by that. Over the first half of the current economic cycle, since 1997, the trend in productivity growth was 2.66 per cent each year, compared with 1.9 per cent over the previous economic cycle, from 1986 to 1997. I do not want to be overtly political by identifying which Administration were responsible for which parts of those cycles. Although I accept entirely the enjoinment of the noble Baroness that we should seek to improve productivity—an extremely useful measure of successful economic activity—she should be fair and recognise the progress made under this Administration.
	This has been a most interesting debate which has focused on an area of the greatest significance to our fellow citizens. I apologise to the noble Lord, Lord Sheikh, for not being able to address the particular issues of the insurance industry. It is my first day in this brief, though I am not sure that I would be qualified to answer the questions he raised on my second day. I will write to him on the particular concerns he raised; I know that they are of considerable significance. This has been a most useful debate. I congratulate my noble friend both on introducing it and on the way she presented it to the House.

Lord Judd: My Lords, the noble Earl, Lord Sandwich, deserves the admiration of us all for his unflagging humanitarian concern for the Palestinian people. I declare an interest as a former director of Oxfam and as a member of the Friends of Oxfam. Indeed, a good deal of what I want to say is based upon Oxfam front-line experience.
	It seems to me that any lasting solution will depend upon the willingness of Israel and the outside world to listen to and talk with an inclusive cross-section of Palestinian representatives. We cannot pick and choose the negotiators whom we regard as acceptable and then expect success. To do that is inevitably provocative, and it is unconvincing to preach the virtues of democracy and then to shun meaningful co-operation with those whom the people elect. I do not believe that policies which isolate the elected Palestinian Government while supporting the president's office help to resolve the civil conflict that now threatens the whole fabric of Palestinian society.
	To oversimplify by talking of extremists or moderates does not take into account the highly complex political realities. It also risks alienating large sections of the Palestinian people. Indeed, it is all too possible that the Israeli, US and our own approach of openly favouring Fatah with support and money could well assist in provoking the implosion of the Occupied Territories, especially Gaza. Unless, God forbid, that is the intention, if the quartet finds itself unable to work with Hamas it should at least strive to avoid exacerbating the division between Hamas and Fatah.
	Meanwhile, the destabilising humanitarian plight of the Palestinians remains grave, as the noble Earl has illustrated. As I argued in our debate last month, the suspension of international aid to the Palestinian authorities—$350 million of direct budgetary support in 2005—coupled with the cancellation of technical support and humanitarian schemes and the withholding of tax revenues by Israel of $814 million in 2005 and an estimated $700 million in 2006 have led to a dramatic increase in poverty. The World Bank reported last November that public service workers received only 40 per cent of their normal salaries, and in the same month UNRWA reported that 1 million Palestinians were living on less than half a dollara day. Indeed, on 12 December, Reuters reported Filippo Grandi, the deputy head of UNRWA, as having said that aid policy was perceived as politically motivated impoverishment. According to the UN Office for the Coordination of Humanitarian Affairs, the Palestinian Authority has only 34 per cent of the income it had in 2005.
	Despite the 27 per cent additional aid given by the European Union since 2005, the temporary international mechanism, known as TIM and extended by the quartet for three months in December, has nowhere near adequately met the situation. While it is true that 70,000 public service workers receive partial payments under TIM and 73,000 social welfare payments are made by the mechanism, some 90,000 government workers, mostly security personnel, are excluded from the scheme. Many key workers, including those in the public health sector, are left without regular salaries.
	The normal annual Ministry of Health budget for medical supplies is $43 million, but only $8 million in donations has been received. It is winter, and stocks of drugs are severely depleted. In some areas, hospitals have closed or moved to providing only emergency treatment. Some doctors report receiving no funding at all from TIM. The Union of Health Work Committees, an NGO that runs a hospital and four health centres in Gaza, fears it will collapse for lack of funds. The union is owed half a million dollars by the Ministry of Health for its sub-contracted services, including vaccination campaigns and surgery. In fact, it is on the verge of bankruptcy. While it receives 300 litres of fuel daily through TIM, its basic services require a further 400 litres a day. I understand that other NGO health providers face very much the same difficulties.
	An Oxfam assessment team has found that many water and sewage projects have been suspended because of a lack of funds. Before disengagement,95 per cent of household water bills were paid, but it is now only 25 per cent. The Coastal Municipal Water Utility, a public/private partnership, depends on those bills to pay its workers, most of whom have now lost their salary. In addition, municipalities and their staff, who act as joint implementing partners, also lost their incomes because of the embargo on the Palestinian Authority.
	It is significant that TIM provides its funding through the Fatah office of the president, thereby creating parallel funding structures and institutions. The UN Office for the Coordination of Humanitarian Affairs, the World Bank and others have expressed concern that this could undermine existing ministries. Surely it is an urgent priority to resume payments to the Palestinian Authority. Earlier today, we were debating the White Paper on good governance. I fail to see how deliberately creating parallel systems of administration in such a situation can help good governance.
	It is clear that the situation I have been describing has given a powerful twist to the spiralling violence between Palestinian factions. According to the OCHA, that violence has increased by 800 per cent since 2005. With security and police excluded from the temporary international mechanism, different security units are allied to Hamas or Fatah. Negotiations by our own Prime Minister and European Union officials aimed at paying 70,000 security workers seem, unfortunately, to have come to nothing. Those workers support hundreds of thousands of family members. David Shearer, the head of the OCHA in Jerusalem, recently said in evidence to a Commons committee that current aid policy was creating a "failed state".
	If we are to maintain support for what will inevitably be long peace negotiations, the suffering and dislocation I have described must urgently and effectively be addressed. Failure by the international community to do so will undermine its credibility when it has a vital political role to play. That political role must involve nurturing regional goodwill and support. We must therefore really try to see statements such as those by our Prime Minister and Javier Solana in favour of President Abbas through the eyes of the region and the Palestinians themselves. Through many of those eyes, such statements are, perhaps inevitably, seen as an attempt to assist in what many would regard as, in effect, a coup against Hamas. Of course Hamas must come to recognise Israel and its right to exist. That is essential. Butevery day, all the time, we have to keep asking ourselves whether what we are doing or not doing, and what we are saying or not saying, makes that more or less likely.

Lord Sheikh: My Lords, almost four decades of protracted occupation and conflict have left the Palestinian territories with what might be best described as a "war economy", with all the implications that has for social, economic and political development.
	The Palestinian economy relies heavily on donor aid, including the temporary international mechanism devised by the European Union and the World Bank, which bypasses the Hamas-led Government and provides aid direct to Palestinian people. Although I support this mechanism and the work of the diplomatic quartet established by the United Nations, the United States, Russia and the European Union, I have concerns over the cutting of funding. For example, one effect of the freeze in aid is that salaries of some 160,000 government workers have gone largely unpaid. That cannot but further undermine the Palestinian economy and civil society.
	A significant share of donors' assistance in the last four years has been for relief efforts aimed at poverty alleviation. Poverty will undoubtedly continue to be a serious problem as long as current political conditions persist. Certainly, the grotesque levels of poverty in some Palestinian territories, especially in the Gaza Strip, remains a recruiting sergeant for disaffected and alienated youth. It is right therefore that poverty alleviation should have a high priority in Palestinian development strategy.
	Micro-financing has helped to develop economies around the world and I believe there is no reason why it cannot be part of the solution in Palestine. I have seen for myself the success of micro-financing in some parts of the globe, including in the Indian subcontinent, where micro-financing of very small scale enterprises has proved a significant stimulus to economic growth and the creation of new breeds of entrepreneur. It has also provided women with the opportunity to gain empowerment, through gaining success with funding and resources, and start small home businesses. That is especially important at the current juncture. In effect, they can help themselves and their local communities through such small entrepreneurial schemes, which will help to circulate finance within local villages and communities.
	Yesterday I was with the High Commissioner of Bangladesh, discussing at length the micro-credit and financing arrangements in Bangladesh and the success of the operations. Some of what they do can perhaps be replicated in the Palestinian territories. I have recently been asked to become involved with a group carrying out micro-financing operations in the Palestinian territories. I believe that micro-financing could provide some Palestinians with the key to improving their own living standards and aiding economic development. Could the Minister kindly tell the House what steps, if any, have been taken to support micro-financing schemes in the Palestinian territories?
	Unfortunately, I feel that providing relief and development is only a short-term solution. It is important to recognise the adverse effect of economic dependence of the Palestinian territories on Israel, formed over the past decades. On the point, may I ask what measures Her Majesty's Government are taking for a new policy framework to move from providing relief and development only to one which helps support the Palestinian people become more economically empowered?
	Without such empowerment all forms of peace proposals and dialogue, although valuable, threaten to remain ineffective. As poverty aids violence, so wealth creation will aid stability, for both the Palestinian territories and Israel.
	Experience in the Holy Land has shown that hopelessness leads to violence, but the prospect for empowerment leads to peaceful co-existence.

Viscount Waverley: My Lords, there is an issue that unites the interests of western Governments with Hamas; corruption, the bane of governmental and commercial worlds alike.
	A divisive issue to the formation of a Unity Government has arisen, exacerbated by a US/Israeli demand that the post of Finance Minister be given to Salem Fayyed—a past Finance Minister about whom there are grave reservations.
	Participants argue that the West has not been following the detail closely enough to make informed judgment. US diplomats have been stating that if Abu Mazen is left with no choice but to choose Fayyed, albeit through coercion, this would unlock the$800 million Palestinian customs-taxes held back by the Israelis. That is tantamount to blackmail in my book.
	I call on the British Government to not proffer similar unreasonable opinions; allow the Palestinians in this regard to administer their affairs and to not interfere. Senior Treasury officials, supported byEd Balls MP on behalf of our Chancellor of the Exchequer, have travelled to Palestine twice recently. I understand that they were advocating the US line.
	Hamas will argue corruption and will veto any attempt at nomination, others would say Fayyed is at best guilty of extreme ineptitude. An isolated Hamas Government will not tolerate western pressure over this appointment, which is of critical importance for the institutional building of transparent governance and the laying down of the foundations for a future vibrant, progressive Palestinian economy.
	Numerous examples abound of mismanagement, including increasing government expenditure by50 per cent to the extent that there was not enough money to pay public sector salaries; underselling investments and giving away unsecured loans worth millions; and, equally worrying for the donor community, mortgaging funds specifically donated for health and education projects; and not having any programme to attract inward investment but also not even fulfilling agreements with existing investors.
	In addition, the Economist Intelligence Unit reported this time last year that during Fayyed's time as Finance Minister, some $700 million were secured through PIF funds by the Finance Ministry, against all the rules.
	Out of a population of 8 million worldwide, other worthy moderate proven finance-ministerial candidates exist. I could identify for example Shukry Bishara, a past senior vice-president of the Arab Bank and today's chairman of the Palestine Investment Fund; George Abed, ex IMF and now head of the Central Bank; Ibrahim Dabdoub, managing director of the National Bank of Kuwait in the Gulf; and Mohammed Mustafa, ex World Bank, managing director of the PIF and close advisor on all matters to Abu Mazen. Other good names exist.
	In conclusion, as a thought on how not to win friends, no leader likes being dictated to. This is self-defeating, particularly when coming from the US, from whom any coercion is interpreted with deep suspicion; a death-knell for advancing causes.

Lord Anderson of Swansea: My Lords, I congratulate the noble Viscount on his timely speech and apologise to him and to your Lordships; I had a hospital appointment which went on far longer than expected.
	My link with the Anglo-Israel Association is duly registered. I shall make but four brief comments. First, the starting point is clear: without doubt, there is real poverty in the West Bank and Gaza. Christian Aid quoted in the Foreign Affairs Committee report on terrorism published last June figures from July 2005 showing that more than 2 million people on the West Bank survive on less than £1.05 per day, and the situation is much worse in Gaza, where on average citizens live on less than 85p per day, well below the official UN poverty line. According to ILO statistics, unemployment stands at 23 per cent to 24 per cent; in the south of Gaza it stands at 50 per cent, with youth unemployment there at 70 per cent.
	The noble Earl has asked what assistance Her Majesty's Government are providing for relief and development. This is my second point. The fact is that the European Union is the principal provider of financial and technical assistance to the PA and the United Kingdom is a major bilateral donor. These figures are easily obtainable from the website. Between 1994 and 2001, the European Union and its member states contributed €3.47 billion to the Palestinians, far in excess of the pledges made at the post-Oslo donor conference in Washington. Since the intifada and the economic collapse there, the EU has contributed more than €1 billion. In 2005, the EC's financial assistance to the Palestinians was€192 million for direct support, infrastructure, institution building and social services. Direct financial assistance was obviously put on hold when the newly elected Hamas Government refused to accept the international community principles of recognising Israel, renouncing violence and accepting the international agreements. Yet direct aid to the Palestinian people accelerated so that within the first two months of last year almost half the normal annual budget was committed and, as we have heard, on 1 September all elements of the temporary international mechanism—the TIM—were declared to be operational. By that time, €330 million had already been made available by the EU.
	Given those facts, it is surely difficult to argue that the economic and social problems are due to any neglect by the European Union. The Palestinian Authority has perhaps more aid per head of population than any other territory. Yet it is still not clear that the European Union and the United Kingdom are given credit in the Arab world for that contribution. Perhaps the European Union should re-examine its public diplomacy.
	That said—this is my third point—there is perhaps a danger that the outside world will view the Palestinians largely as victims who are in no way responsible for their condition. The evidence to the Foreign Affairs Committee report last June quotes Transparency International, which states:
	"Corruption is a major cause of poverty as well as a barrier to overcoming it".
	The question has to be asked: where has all that money gone? In September 2003 the IMF stated that it had identified $900 million in public assets that had been diverted into the private accounts of the Palestine leadership. In January 2005, shortly after the death of Chairman Arafat, Al Jazeera estimated his private fortune at between $4.2 billion and$6.5 billion. Corruption was clearly part of the reason for the electoral defeat of Fatah, and it makes the task of President Abbas more difficult. The EU should have insisted on greater transparency to reduce the misuse of its funds, and it should in future institute more effective procedures when aid is resumed, with a far more vigilant OLAF.
	The social problems are exacerbated by the high fertility rates in the Palestinian territory. The Palestinian Central Bureau of Statistics publication, Palestinian Children—Issues and Statistics, Annual Report 2006, published last April, quotes a 2004 survey indicating that the total fertility rate in the Palestinian territory is 4.6 children. It is 4.1 in the West Bank, which doubles the population there in31 years, and 5.8 in Gaza, which doubles the population there every 25 years. In other Arab countries, the total fertility rate is lower. In Syria and Jordan, for example, it is 3.7, and the fertility rate of Israeli Arabs is less than four. With such a booming population, it is clearly much more difficult to provide jobs, housing, education and infrastructure.
	Finally, at the heart of the social and economic problems is the fact of instability. Which private investors are likely to be attracted in the current conditions? All roads lead to politics; the intifada, the struggle for top dog between Fatah and Hamas, and the gloomy prospect for a political solution. Hamas appears to have gained some confidence in the past few months and seems ready to ignore the political and economic boycott. Money is smuggled to it through the Rafah crossing. The two-state solution appears to be losing ground. I note yesterday's declaration by the Hamas political leader in exile, Khalid Meshal, stating,
	"in reality there will be an entity or state called Israel on the rest of Palestinian land. This is a reality, but I won't deal with it in terms of recognising or admitting it".
	This may be a marginal softening of words, but it is still light years from the Arab League Beirut formula of 2002. After its unilateral withdrawal from Lebanon in 2000, and from Gaza in August 2005, Israel clearly sees little hope in further unilateral moves. Obviously, there is fault not only on one side. For example, progress on easing closures has been slow, there have been freight delays, and there is the issue of release of the customs receipts. The IDF appears to be seeking absolute security, which causes deep frustration. I am confident that Israel would wish to promote a stable and prosperous Palestine and find a negotiating partner that can deliver.
	The only final sign of hope is that there is likely, as a result of the initiative by the German chancellor leading the EU presidency, to be a reinvigoration of the peace process. Equally, as a result, Condoleezza Rice will be in the area tomorrow. Chances of progress are dwindling, but the quartet, including the EU presidency's and our Prime Minister's efforts, surely should begin a new drive for a settlement.

Lord Wright of Richmond: My Lords, we should all be grateful to my noble friend Lord Sandwich for initiating this debate on the vital and urgent need for relief and development assistance in the Palestinian territories.
	The Palestinians, whether in Gaza, on the West Bank, or in Jerusalem, need more than development assistance; they need hope—hope that the world will pay more attention to their longing for a state of their own, a state with contiguous boundaries, living at peace with its Israeli neighbour; a state whose viability is not being daily undermined by the continuing expansion of illegal Israeli settlements, and a state whose Palestinian inhabitants and those who wish to help them can move freely from one end of their territory to another, without checkpoints, harassment or the so-called security wall. For all these reasons, they need hope that the quartet will be reactivated after months of apparent inactivity to pursue the aims of the road map, to which the vast majority of Palestinians and a significant number of Israelis are deeply committed.
	What hope can any of us, Palestinians or Israelis have in the current situation? I note that the Prime Minister, in reply to a question in the other place yesterday, spoke of his hope that the quartet would meet again before long. I hope that the Minister in reply can give us more assurances on that. I welcome also the Prime Minister's repeated acknowledgment that a solution to the Palestinian problem lies at the core of resolving the crises in the Middle East, including Iraq. But where is there any reference to the Palestinian problem in the statement made yesterday by President Bush on his strategy for Iraq? On the contrary, the president appears to have ignored the advice of the Baker-Hamilton commission, and presumably that of his friend the Prime Minister, by refusing to accept any link between the crisis in Iraq and the Israeli-Palestinian conflict.
	Israeli settlement expansion on the West Bank, in the Jordan valley and around the crucial settlement area of Ma'aleh Adumim near Jerusalem, continues in spite of rather half-hearted criticism by the State Department two weeks ago that plans to build new settlements—and this is the first totally new settlement to be planned for a decade in the West Bank—would violate Israeli obligations under the road map. I hope that the Minister can tell us what protests Her Majesty's Government have made either publicly or privately to the Israelis about these expansionist moves, and that she will confirm that the Government still regard all Israeli settlement activity in the Palestinian territories as illegal underthe Geneva Convention. Much of that activity, incidentally, is also in direct violation of Israeli law. The Israeli organisation Peace Now has confirmed that almost 40 per cent of the land used by Israel for settlement in the occupied West Bank is owned legally by Palestinians.
	The constraints on Palestinian movement also grow harsher by the day. Israeli military orders are now coming into force which would ban foreigners using Israeli-registered cars from having Palestinian passengers and require all foreigners entering the West Bank to have prior permission from the Israeli military authorities—requirements that will certainly have very damaging implications for the aid agencies and other NGOs.
	To add to the list of Palestinian hardship, which the noble Earl and other speakers have described all too graphically, more than 9,000 Palestinians are being held by the Israelis, of whom 782 are held without trial in administrative detention. Many prisoners are being held inside Israel itself, another breach of the Fourth Geneva Convention.
	I accept that many of the measures to which I have referred relate to the Israeli Government's genuine fears about security, and to the failure of the legally elected Hamas Government to recognise Israel. I hope, nevertheless, that we and the Israelis will take note of reports in the press today to which the noble Lord, Lord Anderson, has referred, that the Hamas leader, Mr Khalid Meshal, has publicly acknowledged the reality that there will remain an Israeli state. I do not wish to press the Minister, as I have often done, on formal contacts with Hamas, but I hope that the Foreign and Commonwealth Office seriously consider authorising our consul-general in Jerusalem and our ambassador in Damascus to have the same sort of discreet contact with Hamas that I and my predecessor had with the PLO and the Palestinian National Congress when we were ambassadors in Damascus in the late 1970s.
	The Minister will no doubt give us up-to-date details of the financial assistance which Her Majesty's Government and our partners in the European Union are giving to ease the plight of the Palestinians. This is very necessary and welcome, as is the need to address the sort of corruption to which the noble Lord, Lord Anderson, has referred. But life in Gaza and the West Bank is becoming daily more and more intolerable. I hope that the Minister will be able to reassure the House that our partners in the quartet, not least our American friends, realise the full enormity of Palestinian suffering and accept the urgent need to take action, to not only halt what is happening throughout the Palestinian territories but to reverse it. This will require not only immense political courage on the part of the Israelis, but also a degree of commitment by the United States, which sadly seems not yet to have attracted the support of President Bush.

Baroness Deech: My Lords, I thank my noble friend Lord Sandwich for initiating this crucial debate. One cannot deny or ignore the plight of innocent Palestinians living in ever deteriorating socio-economic conditions. As the interior political situation in the Palestinian territories continues to spiral out of control, one must not neglect the civilian population. I am sure that we all hope for a rapid improvement in the quality of life of the Palestinians, as well as peace in the region. My call today is that the aid should be given within a framework of responsible philanthropy, with focus and openness.
	Your Lordships will know that, since the election of Hamas in January 2006, our Government with the international quartet have halted direct funding to the Palestinian Authority. As has been made abundantly clear all along, the cessation of the sanctions is dependent on three factors: the recognition of the state of Israel, the renunciation of violence and the willingness to accept existing treaties signed between the PLO and Israel.
	Almost a year on, the Hamas Government still refuse to accept these conditions, despite the rapidly deteriorating economic situation faced by their own people. Election does not equate to good government but with election comes responsibility. The international community has offered Hamas a solution to its current economic woes but so far this has fallen on stony ground. In order to alleviate Palestinian problems, the international community requires a respondent. Hamas has until now refused to make that reply.
	In an attempt to ensure that emergency and humanitarian aid is available to needy Palestinians, the EU has created the temporary international mechanism, known as TIM, a fully transparent and accountable distribution system able to bypass the Hamas Government. To date over £220 million has been directly transferred through the TIM, of which over £12 million has come from our own Government.
	It should be noted that, although able to offer emergency relief, the TIM alone cannot fully provide for the growing needs of the Palestinian population. I stress again that this would be available only through the Hamas Government's acceptance of the international community's three preconditions.
	The economic woes of the Palestinians have existed for many years and not simply since the election of the hostile Hamas Government. One cannot place the blame squarely on a lack of international assistance from our Government or from any other. According to the World Bank's former director for Gaza and the West Bank, foreign contributions to the Palestinians have represented,
	"the highest per capita aid transfer in the history of foreign aid anywhere".
	The London-based watch group Funding for Peace Coalition calculates total contributions in direct and indirect aid of over £6 billion since 1993, of which £450 million has come from this country. These statistics pose a crucial question, one at the very core of the development of the Palestinian territory: echoing the noble Lord, Lord Anderson, where has all this money gone? Based on the levels of poverty and degradation within the Palestinian Authority, it is clear where it has not been spent. Gaza, too, lies derelict a year after the transfer.
	The corruption within the Fatah party of the late Yasser Arafat is well documented. As his people suffered, his own bank balance soared. Again echoing the noble Lord, Lord Anderson, Arafat's wealth at the time of his death was estimated at approximately £3 billion. There has been no reclaim.
	Many have argued that the election of Hamas in January 2006 was based on its anti-corruption platform. However, Hamas has not lived up to its promises, and corruption continues to flourish alongside poverty. Only in November, Hamas deputy Mushir al-Masri attempted to cross into Gaza from Egypt with $2 million. In December, the Hamas leader, Ismail Haniya, attempted to bring $35 million into the territories, only to be intercepted. Once again, the Palestinian population finds itself under the leadership of a corrupt regime whose priorities lie not in the prosperity of the people but rather its own ends. In May last year, Israel offered to transfer50 million shekels to alleviate the Palestinian shortage of medicines. But the Palestinian Authority demanded the aid in cash and would not accept the offer of medical supplies. Neither was transferred.
	The lack of accountability and transparency in aid transfers to the Palestinians has meant that billions of pounds have been squandered by the leaderships. We have an obligation to assist those in need, but we also have an obligation to the public to ensure that our expenditure is reaching those in the greatest need. Under both the Fatah and Hamas Governments, this has not occurred and they show no signs of improvement. Again, given the interest of the entire region in this situation, one must question the contributions of the neighbouring Arab states in the quest for peace and prosperity in the region.
	Among Israel's Arab neighbours are some of the most oil-rich in the world. OPEC net oil export revenue projections for 2006 were around $500 billion. Yet, when one examines their contribution to the woeful economic situation of their Palestinian brethren, one sees nothing more than political rhetoric and very little in direct aid.
	The destiny of the Palestinians is the key to peace in both the region and the world. We must continue to support the population as best we can, assistingthe development of a civil framework run with accountability and under the rule of law. It needs to provide tax and contract law, which is missing, and it needs to be free of terrorism and corruption.
	To sum up, given that the responsibility is a proportionate one, the Government should question the need for, and ensure that there is, accounting and independent audit, accountability and transparency. The Arab nations of the region must shoulder their part of the burden, and it should be not only for short-term needs. We need investment in the infrastructure for the future. To echo the message of the late Seymour Lipset, whose obituary appears in today's newspapers, economic development is a requisite for stable democracy, and that is what we should seek.

Baroness Royall of Blaisdon: My Lords, I too am grateful to the noble Earl, Lord Sandwich, for securing this debate on what assistance the UK Government are providing to meet relief and development needs in the Occupied Territories. I also thank noble Lords for their contributions. I am pleased that we have had an opportunity to discuss the many needs of this disputed area of the world, including the vital need of hope, as identified by the noble Lord, Lord Wright of Richmond.
	The Occupied Territories were characterised in 2006 by political uncertainty, economic decline and worsening insecurity. The terrible statistics have been clearly brought to our attention today. The failure of Hamas to move forward and to engage in President Abbas's efforts for intra-Palestinian reconciliation, Israel's economic and military response, the abduction of Corporal Shalit and the ensuing violence, as well as clashes between Palestinian Hamas and Fatah supporters, have all affected the prospects for peace.
	People on both sides of this conflict are victims of the failure of politics. For the people of Israel, the failure of politics has created a fear that no wall, checkpoint or road closure can quell. For the Palestinian people, the failure of politics has crippled the economy, and the continuing military activity causes untold grief and pain. For extremists and terrorist groups across the world, the failure of politics means that this conflict continues to act as an excuse. Peace is the only solution: a two-state solution that provides for a safe and secure Israel and a democratic and viable Palestinian state, living in peace and prosperity with its neighbour. Ordinary people want their leaders to show them a way towards this solution. The quartet is an important part of the peace process. The noble Lord, Lord Wright, asked when the quartet would meet again. We hope that it will meet in the margins of the forthcoming conference on Lebanon in Paris at the end of this month.
	In response to the noble Baroness, Lady Northover, I say that the road map is not dead, although it may be on hold. In November I attended a meeting in Finland, shortly after the French-Spanish initiative—an initiative from, among others, the Spanish Foreign Minister. He stressed his personal commitment to the road map, because it is the only agreement that the Israelis, President Abbas and the whole international community have signed up to. It is the only way forward at present.
	As the noble Baroness, Lady Deech, has clearly stated, peace will not be possible while the Hamas-led Palestinian Authority Government do not agree to renounce violence, to recognise Israel, and to accept previous agreements, including the road map. These quartet principles are essential first steps. They ask no more from Hamas than has been asked of previous Palestinian Governments. My noble friend Lord Anderson referred to the reported statements of Khalid Meshal. These comments indicate that a debate is going on within Hamas, presumably as it begins to understand the reality of what will be required to achieve peace and prosperity for the Palestinian people and for others in the region—namely a negotiated two-state solution.
	At the same time, while Hamas needs to sign up to the previous agreements and the road map, Israel must stop actions that fuel Palestinian resentment, such as building settlements on Palestinian land and placing restrictions on movement and access. I can confirm to the noble Lord, Lord Wright, that we believe settlement-building to be contrary to international law and a clear obstacle to peace. My right honourable friend the Foreign Secretary raised her concerns about the construction of the Maskiot settlement in the Jordan Valley with Foreign Minister Livni on 2 January. Our embassy makes continual representations to people on the ground in Tel Aviv; they are in constant discussion, making their concerns known about this and other issues. The Prime Minister raises concerns at every opportunity.
	In November I also urged Foreign minister Livni to act on the crossing points, raised by the noble Baroness, Lady Northover, among others. Of course, the crossings are vital to the Palestinian economy, as the noble Lord, Lord Sheikh, clearly pointed out. We must do everything we can to assist economic development in Palestine, because there cannot be a viable Palestinian state without a viable Palestinian economy. The prerequisite for economic recovery is improved movement and access, both within the West Bank and Gaza, and to the outside world. If movement and access improve, we would expect the Palestinian economy to rebound fairly quickly. Without improved movement and access, sustained growth and economic development will simply not be possible. Beyond this, as the noble Baroness, Lady Deech, informed us, economic prosperity can be supported by strengthening trade relations and improving infrastructure.
	My noble friend Lord Anderson quite rightly said that security was a prerequisite for the necessary inward investment in Palestine. The noble Lord, Lord Sheikh, rightly referred to the importance of microfinance. The UK contribution to UNRWA includes substantial support of its microfinance scheme, and our commitment to UNRWA over the next four years is £76 million.
	The noble Viscount, Lord Waverley, who is not in his place because he had to leave before the end of the debate, raised several points. President Abbas has appointed Salim Fayed as the head of the Palestinian National Fund, a PLO fund, and at the recent meeting between President Abbas and Prime Minister Olmert on 23 December, Prime Minister Olmert agreed to release $100 million-worth of the clearance revenues, and of course we welcome this. Both the Prime Minister and the Secretary of State for International Development visited Israel and the Occupied Territories in December. The Prime Minister made it clear that the Middle East peace process remains a top UK priority. We have not given up and we will never give up on this. He met both Prime Minister Olmert and President Abbas.
	While there is much to be pessimistic about, we believe that there are also reasons to be optimistic. The Gaza ceasefire is holding despite continuing rocket attacks on Israel. Prime Minister Olmert and President Abbas have met and, as I stated, they have agreed to the release of $100 million in Palestinian tax revenues and to the easing of restrictions on movement and access. We are waiting for the implementation of those promises now. Further, on both the Israeli and Palestinian sides, there is a new willingness to look at the fundamental issues, and while both sides must find the leadership, vision and courage to achieve a lasting peace, the international community has an important role to play in supporting them—and we will do so. As the noble Earl said, we have a duty in that regard.
	I have heard many people outside this Chamber say that since Hamas came to power the international community has cut its aid. That is simply not true. As noble Lords have pointed out, EU aid has actually increased this year by 27 per cent to over $650 million. While Hamas's intransigence prevents direct aid to the Palestinian Authority Government until it is based on the quartet principles, the UK continues to support ordinary Palestinians, and we are one of the largest European donors. In the past year we provided a total of £70 million to the Palestinians, including our contribution through the European Commission, and this aid is working. The World Bank said at the beginning of 2006 that the economy would shrink by 27 per cent over 2006, but it now says that because of aid the figure has been revised to 9 per cent. Noble Lords have also rightly raised the question of Arab aid to the Palestinian people. The UK is in constant dialogue with key Arab actors, engaging with them on the peace process, and we have invited Arab states to contribute to the temporary international mechanism, one which we helped to design and are backing up with £12 million.
	I note the concern expressed by my noble friend Lord Judd and the question asked by the noble Earl as to whether the TIM is exacerbating problems between Fatah and Hamas. The mechanism is helping to meet the most basic needs of the Palestinian people. It is based on need, not on political affiliations to either Hamas or Fatah. Based on an average household of six people, around 900,000 of the poorest Palestinians have already benefited from allowances through the temporary international mechanism, including many households headed by a female. This has a direct implication for children because they often suffer in female-headed households where no other money is coming in. Doctors, nurses and teachers can now afford to get to work and provide education and healthcare. Electricity and water are up and running in most of Gaza and the West Bank.
	The Secretary of State for International Development was the first British Minister in recent years to visit the Gaza Strip. He talked to people in Sderot in Israel and Beit Hanoun in the Gaza Strip who have been affected by recent violence. He saw personally how difficult it is for ordinary Palestinians in the West Bank to get to work, go to school and hospital, to visit family and to transport produce because of the stringent movement and access restrictions placed on them by Israel. That has increased our desire to do something about the problem, to make our concerns known and get real movement in the Middle East peace process. While aid is needed more than ever, it is not the solution, as noble Lords have recognised. The Palestinians are one of the most highly aided people in the world.
	Peace is the solution. Peace will mean that ordinary Palestinians can get to work, school and hospital, visit their family and transport their produce. It will mean that people on both sides can live free from fear. It will mean that extremism and terrorism elsewhere will no longer be able to cite the conflict as an excuse. While the UK and other donors will continue to provide aid, we will also continue to provide political support to those who want to find a way to peace.
	I stress again to the noble Baroness, Lady Rawlings, that we will not give up. As many noble Lords have demonstrated, peace in the Middle East is fundamental to global peace and we have to support every effort at finding a way towards this peace.